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Development of Insurance
Historical Development Of Insurance in the World
Insurance in some form is as old as historical society. So-called bottomry contracts were known to merchants of Babylon as early as 4000–3000 BCE. Bottomry was also practiced by the Hindus in 600 BCE and was well understood in ancient Greece as early as the 4th century BCE. Under a bottomry contract, loans were granted to merchants with the provision that if the shipment was lost at sea the loan did not have to be repaid. The interest on the loan covered the insurance risk. Ancient Roman law recognized the bottomry contract in which an article of agreement was drawn up and funds were deposited with a money changer. Marine insurance became highly developed in the 15th century. In Rome there were also burial societies that paid funeral costs of their members out of monthly dues.
The insurance contract also developed early. It was known in ancient Greece and among other maritime nations in commercial contact with Greece.
England
Fire insurance arose much later, obtaining impetus from the Great Fire of London in 1666. A number of insurance companies were started in England after 1711, during the so-called bubble era. Many of them were fraudulent, get-rich-quick schemes concerned mainly with selling their securities to the public. Nevertheless, two important and successful English insurance companies were formed during this period—the London Assurance Corporation and the Royal Exchange Assurance Corporation. Their operation marked the beginning of modern property and liability insurance.
No discussion of the early development of insurance in Europe would be complete without reference to Lloyd’s of London, the international insurance market. It began in the 17th century as a coffeehouse patronized by merchants, bankers, and insurance underwriters, gradually becoming recognized as the most likely place to find underwriters for marine insurance. Edward Lloyd supplied his customers with shipping information gathered from the docks and other sources; this eventually grew into the publication Lloyd’s List, still in existence. Lloyd’s was reorganized in 1769 as a formal group of underwriters accepting marine risks. (The word underwriter is said to have derived from the practice of having each risk taker write his name under the total amount of risk that he was willing to accept at a specified premium.) With the growth of British sea power, Lloyd’s became the dominant insurer of marine risks, to which were later added fire and other property risks. Today Lloyd’s is a major reinsurer as well as primary insurer, but it does not itself transact insurance business; this is done by the member underwriters, who accept insurance on their own account and bear the full risk in competition with each other.
USA
The first American insurance company was organized by Benjamin Franklin in 1752 as the Philadelphia Contribution ship.
The first life insurance company in the American colonies was the Presbyterian Ministers’ Fund, organized in 1759. By 1820 there were 17 stock life insurance companies in the state of New York alone. Many of the early property insurance companies failed from speculative investments, poor management, and inadequate distribution systems. Others failed after the Great Chicago Fire in 1871 and the San Francisco earthquake and fire of 1906. There was little effective regulation, and rate making was difficult in the absence of cooperative development of sound statistics. Many problems also beset the life insurance business. In the era following the U.S. Civil War, bad practices developed: dividends were declared that had not been earned, reserves were inadequate, advertising claims were exaggerated, and office buildings were erected that sometimes cost more than the total assets of the companies. Thirty-three life insurance companies failed between 1870 and 1872, and another 48 between 1873 and 1877.
After 1910 life insurance enjoyed a steady growth in the United States. The annual growth rate of insurance in force over the period 1910–90 was approximately 8.4 percent—amounting to a 626-fold increase for the 80-year period. Property-liability insurance had a somewhat smaller increase. By 1989 some 3,800 property-liability and 2,270 life insurance companies were in business, employing nearly two million workers. In 1987 U.S. insurers wrote about 37 percent of all premiums collected worldwide.
Russia
Insurance in Russia was nationalized after the Russian Revolution of 1917. Domestic insurance in the Soviet Union was offered by a single agency, Gosstrakh, and insurance on foreign risks by a companion company, Ingosstrakh. Ingosstrakh continues to insure foreign-owned property in Russia and Russian-owned property abroad. It accepts reinsurance from foreign insurers. However, following the movement toward a free market economy (perestroika) after 1985 and the breakup of the Soviet Union in 1991, some 230 new private insurers were established.
Gosstrakh offers both property and personal insurance. The former coverage is mandatory for government-owned property and for certain property of collective farms. Voluntary property insurance is available for privately owned property. Personal coverage’s such as life and accident insurance and annuities also are sold.
Before 1991, insurance against tort liability was not permitted, on the ground that such coverage would allow negligent persons to escape from the financial consequences of their behavior. However, with the advent of a free market system, it seems likely that liability insurance will become available in Russia.
Eastern European Countries
After the breakup of the Soviet Union, countries in eastern Europe developed insurance systems of considerable variety, ranging from highly centralized and state-controlled systems to Western-style ones. Because of recent political and economic upheavals in these countries, it seems likely that the trend will be toward decentralized, Western-style systems.
A few generalizations about insurance in eastern European countries may be made. Although state insurance monopolies are common, they are losing some business to private insurers. Insurance of state-owned property, which was considered unnecessary in socialist states, has been established in several countries.
Japan
Insurance in Japan is mainly in the hands of private enterprise, although government insurance agencies write crop, livestock, forest fire, fishery, export credit, accident and health, and installment sales credit insurance as well as social security. Private insurance companies are regulated under various statutes. Major classes of property insurance written include automobile and workers’ compensation (which are compulsory), fire, and marine. Rates are controlled by voluntary rating bureaus under government supervision, and Japanese law requires rates to be “reasonable and nondiscriminatory.” Policy forms generally resemble those of Western nations. Personal insurance lines are also well developed in Japan and include ordinary life, group life, and group pensions. Health insurance, however, is incorporated into Japanese social security.
Japan’s rapid industrialization after World War II was accompanied by an impressive growth in the insurance business. Toward the end of the 20th century, Japan ranked number one in the world in life insurance in force. It accounted for about 25 percent of all insurance premiums collected in the world, ranking second behind the United States. The number of domestic insurers is relatively small; foreign insurers operate in Japan but account for less than 3 percent of total premiums collected.
Worldwide Operations
Because of the great expansion in world trade and the extent to which business firms make investments outside their home countries, the market for insurance on a worldwide scale expanded rapidly in the 20th century. This development required a worldwide network of offices to provide brokerage services, underwriting assistance, claims service, and so forth. The majority of the world’s insurance businesses are concentrated in Europe and North America. These companies must service a large part of the insurance needs of the rest of the world. The legal and regulatory hurdles that must be overcome in order to do so are formidable.
In 1990 the 10 leading insurance markets in the world in terms of the percentage of total premiums collected were the United States (35.6 percent); Japan (20.5 percent); the United Kingdom (7.5 percent); Germany (6.8 percent); France (5.5 percent); the Soviet Union (2.6 percent); Canada (2.3 percent); Italy (2.2 Percent); South Korea (2.0 percent); and Oceania (1.8 percent).
Major world trends in insurance include a gradual movement away from nationalism of insurance, the development of worldwide insurance programs to cover the operations of multinational corporations, increasing use of reinsurance, increasing use by corporations of self-insurance programs administered by wholly owned insurance subsidiaries (captive companies), and increasing use of mergers among both insurers and brokerage firms. Source (Britannica).
History of Insurance in the Kingdom of Bahrain
It all started in the 1950s, when a group of taxi drivers gathered to form an insurance society, the first mutual insurance company of its kind, in order to abide by the law to buy Third Party Liability insurance cover for their vehicles. This society was so successful that by 1955 the Co-operative Compensation Society was formed to provide insurance for vehicles and other losses arising from accidents. This society was later renamed as the Vehicle Insurance Fund.
As Bahrain has always been a trade center, Norwich Union, a leading United Kingdom based insurer, realizing the insurance potential, opened its first office in the Arabian Gulf in 1950. An agency agreement was signed, appointing Messrs. Yusuf bin Ahmed Kanoo as Norwich Union’s principal agents in Bahrain. The first-ever policy to be issued by the company’s Bahrain office was Marine or all-risks cover for a consignment of Bahraini pearls packed in a rusty old Ovaltine tin, which was being transported by dhow to Aden.
The Zayani Group of Bahrain also ventured into the insurance business way back in 1950’s and became Norwich Union’s competitors in Bahrain. Presently J.A. Zayani & Sons are the sub-agents for The New India Assurance Co. Ltd. Shortly after Norwich Union and The New India Assurance Co. Ltd., Abdulla Yousif Fakhro & Sons, another leading business groups in Bahrain, were assigned as the agents for General Accident Insurance, one of the largest insurance companies in the world at that time.
The first organization to be granted a license to offer long-term insurance products (life and accident insurance) in the Kingdom was American Life Insurance Company (ALICO), which commenced its operations in 1961. ALICO started to launch the first life protection, savings and personnel accident schemes for individuals and corporates in Bahrain.
Bahrain Insurance Company (BIC) was the first public shareholding company and was established on 2nd November 1969, even before the enactment of the Commercial Companies Law promulgated by Decree No. (28) of 1975. The company was incorporated with a paid up capital of BD 600,000, one third of the Paid up share capital owned by General Organization for Insurance, an Iraqi insurance company. BIC was later merged (in 1999) with National Insurance Company (established in 1982) to form Bahrain National Holding (BNH) Company. BNH has a general insurance and long-term insurance subsidiary called Bahrain National Insurance (BNI) Company and Bahrain National Life Assurance (BNL) Company, respectively.
Al-Ahlia Insurance Company was incorporated in 1976 as the second public shareholding company providing all classes of general insurance in Bahrain. Bahrain Kuwait Insurance Company (B.S.C.) was also established in 1976 with Bahraini and Kuwaiti shareholders. By virtue of its shareholding structure, the company has been allowed to operate as a national insurance company both in Bahrain and Kuwait, the only company to enjoy such a privilege.
Following the inauguration of King Fahad’s Causeway in 1986, United Insurance Company (UIC) was formed with the main purpose of providing insurance to all vehicles crossing King Fahad’s Causeway. The Company is now owned by six insurance companies viz. Tawuniya, KSA (50%), Bahrain National Holding Company (10%), Bahrain Kuwait Insurance Company (10%), Al-Ahlia Insurance Company (10%), Bahrain National Insurance Company (10%) and AXA Insurance (Gulf) B.S.C.(10%).
Bahrain Islamic Insurance Company (BIIC), now called Takaful International Company, is the first Islamic insurance company to be incorporated in the Kingdom in 1989. As one of the early players in the Islamic financial field, BIIC offered Islamic insurance products and services which were designed to meet the increasing demand for such products. The Takaful industry has grown over the years and there are now six Takaful and two Retakaful companies operating in Bahrain.
Gulf Union Insurance & Reinsurance Company BSC(c) was incorporated in 1995 pursuant to a decision of the Cabinet of Minister of the Kingdom of Bahrain dated 8 May 1994.
Bahrain is also the home to the Arab Insurance Group (ARIG) which is another example of the significance of Bahrain’s position as a regional hub for insurance industry in the Arabian Gulf and wider global market. ARIG is the representative body for the insurance industry in the Arabian Gulf and is one of the largest Arab-owned reinsurance organizations in the Middle East and North Africa (MENA) region. Established in 1980 by the governments of Kuwait, Libya and the United Arab Emirates, it has become one of the leading Arab reinsurers with a sound reputation as a dependable partner for the insurance industry in the region. Since the establishment of ARIG in Bahrain, reinsurance market in the Kingdom has been growing steadily and an increasing number of international reinsurers are now using Bahrain as a base of their business throughout the region.
In September 1993, insurance companies and organizations actively involved in the insurance market, set up the Bahrain Insurance Association (BIA). The BIA aims to promote the interests of its members, further develop the insurance industry and enhance insurance awareness in the marketplace.
Starting from 1950 till today, the insurance industry in Bahrain has been growing steadily and strongly, mirroring the expansion of Bahrain’s financial sector. The Kingdom offers the ideal environment for the insurance industry, and with its forward-looking and business-friendly regulatory regime it hopes to sustain this growth in the long-term. As of 2015, Bahrain is home to more than 150 insurance entities which includes Bahraini firms, overseas firms, brokers, insurance managers, insurance consultants, actuaries, loss adjustors, insurance pools & syndicates, insurance society and appointed representatives.
Bahrain has achieved preeminence as the regional financial services centre, through the Government’s wise and far-sighted policy of maintaining an open and diversified economy base and by paying close attention to the legal and regulatory infrastructure. This has provided the framework for the Bahrain insurance industry to flourish and for Bahrain to become the insurance hub of this important region. Since 2002, the Central Bank of Bahrain (CBB) acts as the regulator of the insurance sector and provides an efficient regulatory framework for financial services firms operating in Bahrain. Further, all legal, regulatory and supervisory insurance frameworks follow the essential criteria of the International Association of Insurance Supervisors (IAIS) core principles and methodology.
