“Insurance is a necessity, not a choice.” People have understood this quote over time. Insurance has become important over time. Insurance provides for risk in advance. The insurance companies take risks on behalf of their customers who are called ‘insured’. Insurance company bears the risk in return of an amount received called ‘premium’. Insurance helps in getting protection against loss of huge amount suddenly. Insurance is also of many kinds. It can be health, vehicle (also called auto), life, home insurance and many more. The origination of American insurance is as follows:
The first insurance company named ‘The Philadelphia Contributionship’ was co-founded by Benjamin Franklin. It is dated back to colonial days. The company is the oldest insurance company and it is still in the industry. The first kind of insurance offered by this company was fire insurance. This company warned people against many fire hazards. Also, it refused to insure such buildings where the risk of fire was too high such as wooden houses. The company was structured as a mutual insurance company. It was modeled similar to a London firm. Like the modern times, the company sent out inspectors to assess the risk of the property. The premium depended on this assessment. The company mostly gave seven-year term policies and in case of claims, they were done out of capital reserve fund.
Seven years later, Benjamin Franklin offered a new kind of insurance that is ‘Life Insurance’. In the beginning, religious people rebelled against it as it was unfair to put a monetary value on human life. But with time it was settled as people realized that claims on life insurance helped widows and orphans.
The first company to get listed on the stock market was ‘Insurance Company of North America’.
A new state law was passed by Massachusetts to keep ample reserves to pay off claims of the customers.
In 1851, the first insurance state commissioner was appointed in New Hampshire.
The broad regulation of insurance started in 1859 when the state of New York appointed its own commissioner of insurance and also opened an inter-state department to resolve matters at that level.
The accident insurance policy was started by ‘The Travelers Insurance Company’.
The first auto insurance policy was launched in 1889.
- The Early 1900s
In this era, things were still not settled as there were scandals and frauds. The issues were because the issuing companies used to issue policies without having the actual capital to pay the claims. Many laws came into existence to solve the problem but things were still unsettled.
The social security act was passed which provided retirement benefits and unemployment compensation. This took away the domain of many insurance companies and industry started regulating itself as there was a fear of more government interference.
So, this is how American insurance came into perspective. It took time but finally, it got all regulated.