Insurance - Who Needs it?
Insurance has a long an progressive history. Through many centuries to the present day, as markets and technnology have evolved, new forms of insurance have been created. Without insurance, there would be no advance in any field - not in space exploration, not in medical science, not in the automotive industry, not in publishinng, not even in the corner convenience store.
Historians believe that a rudimentary form of insurance may have existed in China as early as 5000 BC. There, boat operators found it advantageous to redistribute their cargos to several boats as they approached treacherous rapids on their rivers. If one boat was lost, all the boat owners shared the loss and no one was wiped out.
The Code of Hammurabi, written around 2000 BC by the Babylonian emperor, gave the world the principle of indemnity. The Code said that the merchant who borrowed money to finance his trip, and was subsequently robbed, would be relieved of his debt. Here, the risk of loss was thus transferred from the trader or borrower to the money lender or financier.
In 1310, the first commercial insurance company was chartered by the Duke of Flanders and formed to sell policies insuring merchandise against perils of transportation by land and sea.
Today there are more than 2000 property and casualty or general insurance companies in North America offering auto insurance, tenant and homeowners insurance and a variety of commercial or business-oriented lines of insurance such as liability and business interruption.
They work with three basic principles. First, the premiums of many policy holders who do not suffer insured losses, reimburse the insured losses of the few who do. Second, it is important to note that the only dividend is financial peace of mind. Unlike a whole life insurance policy, you can't "cash in" your homeowners insurance. Finally, premiums, within reasonable limits, reflect the degree of risk.
Insurance is designed to stabilize the life of the policyholder by allowing the individual or business to engage in many ventures without having to set aside reserves to meet the financial requirements that could arise from future losses. Imagine how differently you would drive your car if there were no insurance. Would a lawyer give advice or a surgeon pick up a scalpel without insurance? Would you risk the highway?
Policyholders who escape losses help compensate those who don't. While we may not be able to predict the future, we can remove the anxiety of uncertainty with insurance.
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