From Shipwrecks to Skyscrapers: The Evolution of Insurance

Insurance is one of those things we all depend on but rarely stop to think about. It’s there in the background — protecting our cars, homes, businesses, and lives — yet few people ever ask: Where did insurance come from?

In a recent episode of Insurance Hour, host Karl Susman took listeners on a fascinating journey through the history and evolution of insurance, from 14th-century shipping routes to the modern skyscrapers of global finance. His exploration revealed not just how the industry was born, but how it evolved from mutual trust into one of the most sophisticated economic systems on earth.

The Birth of Insurance: Genoa, 14th Century

Insurance began not as a business, but as a mutual agreement between people facing the same risks.

Back in the 1300s, merchants in Genoa, Italy faced a dangerous problem. Shipping goods across the Atlantic to the “New World” was perilous — storms, pirates, and shipwrecks routinely wiped out fortunes overnight. If a fleet of ten ships set sail, maybe only five would return.

Losing even one ship could bankrupt a merchant. So, the traders came up with a revolutionary idea: share the risk.

“Someone had the idea,” Susman explained. “They said, ‘We’ll share the cost with you and share the profits with you. That way, if ten ships go out and only half make it back, you’re not ruined — the loss is shared.’”

This marked the first form of marine cargo insurance — a mutual protection pact among merchants and financiers. Everyone had a stake in everyone else’s success. If no ship sank, everyone profited. If some did, no one was completely wiped out.

That spirit of cooperation and shared exposure became the DNA of modern insurance.

From Mutual Trust to Market Enterprise

Over time, this cooperative model evolved into something larger — and more commercial.

As trade expanded, so did the need for more formal systems of protection. Instead of only merchants insuring each other, outsiders — investors who had no stake in the voyage — began to step in. They weren’t shipping goods; they were betting on outcomes.

They collected premiums from shipowners in exchange for covering losses if a ship sank. If the voyage succeeded, they pocketed the premiums. If it failed, they paid out.

“It went from people doing the same thing and sharing the risk,” Susman said, “to people who simply wanted to make money off the concept of insuring others.”

That transformation — from mutual aid to for-profit enterprise — paved the way for the massive global insurance market we know today.

The Birth of Lloyd’s of London: Insurance Goes Global

Fast forward a few centuries to 17th-century London, where the next great chapter of insurance history was written.

At a small coffeehouse on Tower Street, a man named Edward Lloyd began hosting gatherings of shipowners, traders, and financiers. Over cups of coffee, they discussed shipping news, trade routes, and — most importantly — who was willing to insure what risks.

That coffeehouse became the birthplace of Lloyd’s of London, still the world’s most famous insurance marketplace.

“Lloyd’s isn’t a single company,” Susman clarified. “It’s a marketplace — a meeting place where people come together to decide what they’re willing to insure and at what price.”

The system was brilliantly simple. Each underwriter — often wealthy merchants or aristocrats — would review the details of a voyage or venture and decide whether to “subscribe” to a portion of the risk. They literally signed their names under the terms of the agreement — hence the term underwriter.

Over time, these underwriters organized themselves into syndicates, pooling capital to cover larger, more complex risks. That structure still exists today, covering everything from skyscrapers to satellites.

How Lloyd’s Works — Then and Now

Lloyd’s remains unique because it isn’t a single insurance company. It’s a marketplace of risk where multiple syndicates compete and collaborate to insure major global ventures.

“People literally sit around and review documents,” Susman said. “They look at the number of buildings, the construction plans, where they’re being built, who’s building them — and then decide what to charge to insure that risk.”

The process hasn’t changed much since the 1600s, only the scale has.

Back then, it was one ship. Today, it might be:

A skyscraper project in Dubai.
A global shipping fleet.
A major concert tour.
Even the legs of a celebrity (yes, that’s a real thing).

Each policy is still evaluated on the same question that’s defined insurance since Genoa:

What is the likelihood of loss, and what will it cost to make the insured whole again?

The Core Principle: Indemnity

At its heart, insurance has always been about one promise — to restore what was lost.

“An insurance policy is designed to bring you back to where you were before,” Susman said. “That’s why it always has to consider the worst-case scenario.”

When underwriters assess a risk, they’re not allowed to assume that only some of the property will be lost. They must be prepared for everything to be destroyed.

That’s why pricing — or premium calculation — is such an intricate art. It must balance the cost of claims, the likelihood of disasters, and the ability of the insurer to pay when things go wrong.

From Maritime to Modern: Insurance in the United States

Insurance came to America along with trade and industry. Marine and fire insurance dominated the early markets, protecting merchants and property owners from ruin.

But as industries expanded and technology advanced, new risks emerged — from automobiles to airplanes to cybercrime.

With each innovation came a new type of insurance.

And that growth led to a critical question:

Who regulates all this?

The Turning Point: Regulation and the Rule of Law

Susman highlighted a key legal turning point that shaped the American insurance landscape: who gets to regulate the industry — the federal government or the states?

The answer came through landmark Supreme Court decisions, ultimately codified in the McCarran-Ferguson Act of 1945.

That law declared that insurance is regulated by the states, not the federal government. Each state was granted authority to license agents, approve rates, and oversee insurer solvency.

“That’s how we ended up with fifty different sets of rules,” Susman said. “Every state has its own Department of Insurance, deciding how companies operate within its borders.”

This state-based model remains one of the defining features of the U.S. insurance system — sometimes a strength, sometimes a headache.

It allows flexibility and local control, but also creates inconsistencies. A policy that’s easy to get in Texas might be nearly impossible to write in California.

Lessons from History: What We Can Learn

Looking back from Genoa to London to Los Angeles, Susman identified three timeless lessons that define insurance — past, present, and future.

1. Shared Risk Creates Stability

Insurance began as a cooperative model — neighbors helping neighbors survive financial catastrophe. Even today, pooling risk remains the foundation of the system.

“It’s still about people sharing exposure,” Susman said. “The concept hasn’t changed in 700 years.”

2. Understanding Risk Is Power

Whether it’s 14th-century shipowners or modern business executives, knowledge is what separates safety from ruin. Knowing the risks — and pricing them correctly — is the essence of sustainable insurance.

3. Adaptation Drives Survival

The industry’s history is a story of evolution. Every time the world changes — from wooden ships to steel skyscrapers — insurance changes with it.

“The only reason insurance still exists,” Susman said, “is because it keeps adapting to new risks.”

From Shipwrecks to Skyscrapers — and Beyond

Today’s insurance world is almost unrecognizable compared to its origins. What started as a handshake between merchants is now a trillion-dollar global network spanning every conceivable risk.

But in many ways, the essence remains the same. It’s still about trust, calculation, and resilience.

A homeowner in wildfire-prone California.
A business owner protecting against cyber threats.
A shipping company ensuring global deliveries arrive safely.

All of them are part of the same centuries-old story — a story that began when sailors in Genoa decided to share the burden of the unknown.

“It’s one of the oldest industries in the world,” Susman concluded. “And it’s not going anywhere. As long as there’s risk, there will be insurance.”

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