Insurance dates back to early human society. As social beings, there were verbal and written agreements of mutual aid. At times, these terms were explicit or sometimes implicit. If a family’s house gets destroyed, the neighboring community would were committed to assist in the reconstruction effort. Granaries embodied another early form of insurance to indemnify against famines. This practice exists to this present day in third world regions.
The basic principle of insurance is the transference or distribution of risk. Some of the earliest practices were by Chinese merchants travelling treacherous river rapids, where they would redistribute their wares across many vessels to limit the loss due to any single vessel’s capsizing.
The Babylonians developed a system practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender and additional sum in exchange for the lenders guarantee to cancel the loan should the shipment be stolen or lost at sea.
During the first millennium BC, the inhabitants of Rhodes created the general average, which allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were lost or destroyed during transport, whether to storm or sinking. The ancient Athenian maritime loan advanced money for voyages with repayment being cancelled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.
The Greeks and the Romans introduced the origins of health and life insurance circa 600 BC when they created guilds called “benevolent societies”, which cared for the families of deceased members, as well as paying funeral expenses.