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Insurance is one of those things we rely on every day but rarely stop to question. It quietly protects our homes, cars, businesses, and financial futures — yet few people ever ask where insurance actually came from. In a recent episode of Insurance Hour, host Karl Susman traced the origins of insurance from medieval shipping routes to today’s global financial systems, revealing how a simple idea of shared risk grew into one of the world’s most complex industries.
The Birth of Insurance in 14th-Century Genoa
Insurance began not as a business, but as a mutual agreement between people facing the same dangers. In the 1300s, merchants in Genoa, Italy regularly sent ships across perilous seas filled with storms, piracy, and shipwrecks. If one ship was lost, a merchant could be completely ruined.
To survive, traders developed a revolutionary idea: share the risk. Instead of one person absorbing a total loss, multiple parties would divide the financial exposure.
As Susman explained, merchants agreed to share both profits and losses. If a fleet of ten ships sailed and only half returned, no single merchant was wiped out. This early form of marine cargo insurance created a financial safety net based on cooperation. If no ships sank, everyone benefited. If some were lost, no one faced total ruin.
This principle of shared exposure became the foundation of modern insurance.
From Mutual Protection to Profit-Driven Insurance
As global trade expanded, the cooperative model of insurance evolved. Outside investors — people not involved in shipping at all — began insuring voyages for profit. They collected payments, or premiums, and agreed to cover losses if a ship failed to return.
This changed insurance from a mutual survival tool into a commercial enterprise. If ships made it back safely, investors kept the premiums. If they sank, the investors paid out claims.
According to Susman, this transition transformed insurance from neighbors sharing risk into a business built around pricing and managing other people’s risk. That shift laid the groundwork for the massive for-profit insurance industry that exists today.
The Rise of Lloyd’s of London and Global Insurance Markets
The next major chapter in insurance history unfolded in 17th-century London at a coffeehouse owned by Edward Lloyd. Shipowners, merchants, and financiers gathered there to exchange shipping news and negotiate insurance for voyages.
That informal meeting place evolved into Lloyd’s of London — still the world’s most famous insurance marketplace.
Lloyd’s is not a single insurance company. It is a marketplace where individual underwriters review risks and decide what portion they are willing to insure and at what price. Each underwriter literally signed their name underneath the terms, giving rise to the term “underwriter.”
Over time, these underwriters formed syndicates, pooling capital to cover larger and more complex risks. That framework still exists today and now insures everything from skyscrapers and shipping fleets to international concerts and satellites.
How Lloyd’s of London Still Works Today
Despite centuries of technological change, Lloyd’s risk-evaluation process remains remarkably similar. Underwriters still review detailed information about a project, assess the likelihood of loss, and calculate the cost to restore the insured if disaster strikes.
Today’s risks include:
- Major construction projects
- Global shipping operations
- Large-scale entertainment tours
- Unique assets like artwork and even celebrity body parts
No matter the asset, the central question remains unchanged: What is the likelihood of loss, and what will it cost to make the insured whole again?
The Core Principle of Insurance: Indemnity
At its heart, insurance exists to restore what was lost — not to create profit for the insured. This concept is known as indemnity.
As Susman explained, an insurance policy is designed to return you to the financial position you held before a loss occurred. Underwriters must always consider worst-case scenarios. They cannot assume partial damage; they must prepare for the possibility that everything could be destroyed.
This is why pricing insurance is so complex. Premiums must account for:
- The probability of loss
- The potential size of claims
- The insurer’s ability to pay when disaster strikes
From ancient shipwrecks to modern wildfires and cyberattacks, this principle has remained constant for centuries.
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The Expansion of Insurance in the United States
Insurance crossed the Atlantic along with trade and industrial growth. Early American insurance focused on marine and fire coverage, protecting merchants and property owners from financial devastation.
As society evolved, so did risk:
- Automobiles created auto insurance
- Airplanes created aviation insurance
- Technology created cyber insurance
Each advancement introduced new exposures, and the insurance industry adapted to meet them. That growth eventually raised another vital question: who regulates insurance?
The Turning Point: State Regulation and the Law
The structure of American insurance regulation was shaped by key Supreme Court decisions and ultimately formalized in the McCarran-Ferguson Act of 1945. This law confirmed that insurance is regulated at the state level, not by the federal government.
Each state gained authority to:
- License insurance agents
- Approve or deny rate increases
- Monitor insurer solvency
- Enforce fair claims practices
As Susman explained, this is why the U.S. has fifty different insurance regulatory systems. Each state’s Department of Insurance sets its own rules, which can make coverage easy to obtain in one state and extremely difficult in another.
This state-based approach provides local control and flexibility, but it also creates fragmentation and inconsistency across the country.
Three Timeless Lessons from the Evolution of Insurance
Looking at insurance from Genoa to modern global markets reveals several enduring truths.
Shared risk creates stability. Insurance still operates on the same concept that began 700 years ago: many people sharing exposure so no one bears a catastrophic loss alone.
Understanding risk is power. Accurately identifying and pricing risk has always been the difference between financial survival and collapse.
Adaptation ensures survival. Insurance has existed for centuries because it continuously evolves with new technologies, industries, and threats.
As Susman noted, insurance remains viable only because it keeps adjusting to the changing nature of risk.
From Shipwrecks to Skyscrapers and Beyond
What began as a handshake between merchants has become a trillion-dollar global industry insuring nearly every aspect of modern life.
Homeowners in wildfire zones, businesses guarding against cybercrime, and international shipping companies all rely on the same core concept born in medieval Europe.
Despite its scale and complexity today, the essence of insurance has not changed. It is still built on trust, calculation, and resilience.
As Susman concluded, insurance is one of the oldest industries in the world — and as long as risk exists, insurance will remain essential to human society.
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