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The History of Insurance

The essence of insurance is the spreading of risk from one person to many. As early as 1200 BC, Phoenician merchants began transferring some of their risk to the backers of specific voyages, whereby the backers would profit if the voyage was successful, but would lose their investment if the cargo was lost at sea, either from natural disasters or from pirates. In exchange for backing a voyage and to assure payment if the voyage was successful, Phoenician law allowed the lenders to confiscate the merchant\'s ship for nonpayment.

This form of collateralized loan was called bottomry: this term probably arose because the ship\'s hull was referred to as the bottom. Since substantial resources were required for voyages, and the wealth of these early nations depended heavily on trade, other settlements around the Mediterranean and in Asia also enacted bottomry laws by 400 BC.

In 300 BC the Babylonians developed a system of loans for shipments by sea. Merchants found the risks of shipping by sea to be too great to take on alone, since the loss of one ship could bankrupt a merchant. With insurance, the risk of shipping was equitably spread among those subscribing to the loan.