Insurance is elementally a form of risk management acquired as a hedge against the possibility of loss. Thus, it consists of the
transfer of risk from the insured – being the policyholder, person
or entity buying the insurance -- to the insurer -- or company selling it -- in exchange for an equitable payment in the form of a premium.
The earliest and most primitive form of insurance is still
with us as exemplified by the traditional Amish barn raising, whereby a
community seeks to “make whole” any one of its members who has suffered a
devastating loss. Insurance in the modern sense if its being part of a
functioning money economy had later (albeit quite early) beginnings, going back
to a time thousands of years before Christ when the Babylonians developed a
system whereby a merchant receiving a loan to fund a shipment would pay the
lender an additional sum in exchange for the lender's guarantee to cancel the
loan should the shipment be lost or stolen. Around 66 A.D., the Romans and
Greeks introduced forms of life and health insurance.
Perhaps the origin of insurance now most familiar to us
arose after London’s Great Fire of 1666 laid waste to some 13,000 houses,
prompting Sir Christopher Wren to include an “insurance office” in his new plan
for London a year later. Lloyd’s of London, which was primarily involved in
maritime insurance, opened in a London coffee house late in the 1680s and –
having moved to larger quarters – is still with us today.