fin 3440 insurance industry

fin 3440 insurance industry - Insurance Industry Origins...

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Insurance Industry Origins Insurance in some form is as old as historical society. Bottomry contracts were known to merchants of Babylon as early as 4000-3000 BC. Bottomry was also practiced by the Hindus in 600 BC and was well understood in ancient Greece as early as the 4th century BC. Under a bottomry contract, loans were granted to merchants with the provision that if their shipment was lost at sea, the loan did not have to be repaid. A higher interest rate was charged on such loans to cover the risk, and the additional interest was referred to as a “premium”. Ancient Roman law recognized the bottomry contract in which an article of agreement was drawn up and funds were deposited with a moneychanger. In Rome there were also burial societies that paid funeral costs of their members out of monthly dues. In the insurance contract of ancient Greece and other maritime nations in commercial contact with Greece, a ship owner or merchant who wanted protection would circulate a contract document outlining specifics of the voyage (type ship, cargo, and other facts) to those who wished to bear part of the risk and sign their names under the agreement (“underwriting”, the term has the same meaning today: one who accepts and rejects risks). In early-England, a convenient place for mariners and underwriters to meet in were coffee houses in London where the firm Lloyds of London originated. United States Benjamin Franklin organized the first American insurance company in 1752 as the Philadelphia Contributionship. The first life insurance company in the American colonies was the Presbyterian Minister’s Fund, organized in 1759. By 1820 there were 17 stock life insurance companies in the state of New York alone. Many of the early property insurance companies failed from speculative investments, poor management, and inadequate distribution systems. Others failed after the Great Chicago Fire in 1871 and the San Francisco earthquake and fire of 1906. There was little effective regulation, and rate making was difficult in the absence of cooperative development of sound statistics. Many problems also beset the life insurance business. In the era following the U. S. Civil War, bad practices developed: dividends were declared that had not been earned, reserves were inadequate, advertising claims were exaggerated, and office buildings were erected that sometimes cost more than the total assets of the companies. Thirty-three life insurance companies failed between 1870 and 1872, and another 48 failed between 1873 and 1877. In the late 19 th century (beginning in the 1880s) in the U.S., increased frequency and severity of injuries and death associated with the intercontinental railroad and the industrial revolution led to a shift in legal and public sentiment toward the development of liability insurance as a means to compensate victims of negligence. Until the 1880s, liability insurance was nonexistent in both the U.S. and England because it was deemed to be
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fin 3440 insurance industry - Insurance Industry Origins...

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