History of insurance
Encyclopedia
History of insurance refers to the development of a modern business in insurance
against risks, especially regarding ships, cargo, and buildings ("property" and "fire"), death ("life" insurance), automobile accidents ("auto"), and the cost of medical treatment (health insurance). The industry has been profitable and has provided attractive employment opportunities for white collar workers. It helps eliminate risks (as when fire insurance companies demand safe practices and the availability of fire stations and hydrants), spreads risks from the individual or single company to the larger community, and provides an important source of long-term finance for both the public and private sectors.
and 2nd
millennia
BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi
, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.
Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Nowruz
(beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.
The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."
A thousand years later, the inhabitants of Rhodes
created the 'general average
', which allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage.
The ancient Athenian "maritime loan" advanced money for voyages with repayment being cancelled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.
The Greeks
and Romans
introduced the origins of health and life insurance c. 600 BCE when they created guilds called "benevolent societies" which cared for the families
of deceased members, as well as paying funeral
expenses of members. Guild
s in the Middle Ages
served a similar purpose. The Talmud
deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.
in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa
in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. The first printed book on insurance was the legal treatise On Insurance and Merchants' Bets by Pedro de Santarém (Santerna), written in 1488 and published in 1552.
Insurance became far more sophisticated in post-Renaissance
Europe
, and specialized varieties developed. The will of Robert Hayman
, written in 1628, refers to two policies he has taken out with a wealthy Londoner: one of life insurance and one of marine insurance.
Toward the end of the 17th century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London
remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London
, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon
opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.
In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.
The first insurance company in the United States
underwrote fire insurance and was formed in Charles Town (modern-day Charleston
), South Carolina
in 1732, but it provided only fire insurance.
built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von Bismarck
introduced old age pensions, accident insurance, medical care and unemployment insurance that formed the basis of the modern European welfare state. His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of immigrants to America, where wages were higher but welfare did not exist.
After 1905, led by the Liberal Party
, the British introduced a system of social insurance as well. It was greatly expanded after 1944.
helped to popularize and make standard the practice of insurance, particularly Property insurance
to spread the risk of loss from fire, in the form of perpetual insurance
. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.
The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests created a comparable relief fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived.
A better solution came late in the 19th century when the companies employed doctors who used standardized criteria.
in 2001 and in Illinois
in 2003, the companies have been required to search their records for such policies. New York Life
for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation
of 1863.
During the 1970s and 1980s there was a growth in support for the requirement for drivers to have insurance as a means of proving financial responsibility since it was recognized that the automobile, in the case of an accident, could cause significant collateral damage. It soon followed that car insurance became a mandatory requirement for all drivers.
was issued in 1911.
Commercial insurance companies began offering accident and sickness insurance (disability insurance) as early as the mid-19th century. The first group medical plan was purchased from The Equitable Life Assurance Society of the United States by the General Tire & Rubber Company in 1934. Before the development of medical expense insurance, patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service
business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.
During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis. The first group pre-payment plan was created at the Baylor University
Hospital in Dallas, Texas. This concept became popular among hospitals during the Depression, when they were facing declining revenues. The Baylor plan was a forerunner of later Blue Cross plans. Physician associations began offering pre-paid surgical/medical benefits in the late 1930s Blue Shield plans. Blue Cross and Blue Shield plans were non-profit organizations sponsored by local hospitals (Blue Cross) or physician groups (Blue Shield). As originally structured, Blue Cross and Blue Shield plans provided benefits in the form of services rendered by participating hospitals and physicians ("service benefits") rather than reimbursements or payments to the policyholder.
Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations. The Ross-Loos Clinic, founded in Los Angeles in 1929, is generally considered to have been the first health maintenance organization (HMO). Henry J. Kaiser
organized hospitals and clinics to provide pre-paid health benefits to his shipyard workers during World War II. This became the basis for Kaiser Permanente
HMO. Most early HMOs were non-profit organizations. The development of HMOs was encouraged by the passage of the Health Maintenance Organization Act of 1973
. The first employer-sponsored hospitalization plan was created by teachers in Dallas, Texas
in 1929. Because the plan only covered members' expenses at a single hospital, it is also the forerunner of today's health maintenance organization
s (HMOs).
Employer-sponsored health insurance plans dramatically expanded as a result of wage controls during World War II
. The labor market was tight because of the increased demand for goods and decreased supply of workers during the war. Federally imposed wage and price controls prohibited manufacturers and other employers raising wages high enough to attract sufficient workers. When the War Labor Board declared that fringe benefits, such as sick leave and health insurance, did not count as wages for the purpose of wage controls, employers responded with significantly increased benefits.
Employer-sponsored health insurance was considered taxable income until 1954.
In the United States, regulation
of the insurance industry is highly Balkanized
, with primary responsibility assumed by individual state
insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization
. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks.
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
against risks, especially regarding ships, cargo, and buildings ("property" and "fire"), death ("life" insurance), automobile accidents ("auto"), and the cost of medical treatment (health insurance). The industry has been profitable and has provided attractive employment opportunities for white collar workers. It helps eliminate risks (as when fire insurance companies demand safe practices and the availability of fire stations and hydrants), spreads risks from the individual or single company to the larger community, and provides an important source of long-term finance for both the public and private sectors.
Ancient world
The first methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rd3rd millennium BC
The 3rd millennium BC spans the Early to Middle Bronze Age.It represents a period of time in which imperialism, or the desire to conquer, grew to prominence, in the city states of the Middle East, but also throughout Eurasia, with Indo-European expansion to Anatolia, Europe and Central Asia. The...
and 2nd
2nd millennium BC
The 2nd millennium BC marks the transition from the Middle to the Late Bronze Age.Its first half is dominated by the Middle Kingdom of Egypt and Babylonia. The alphabet develops. Indo-Iranian migration onto the Iranian plateau and onto the Indian subcontinent propagates the use of the chariot...
millennia
Millennium
A millennium is a period of time equal to one thousand years —from the Latin phrase , thousand, and , year—often but not necessarily related numerically to a particular dating system....
BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi
Code of Hammurabi
The Code of Hammurabi is a well-preserved Babylonian law code, dating to ca. 1780 BC . It is one of the oldest deciphered writings of significant length in the world. The sixth Babylonian king, Hammurabi, enacted the code, and partial copies exist on a human-sized stone stele and various clay...
, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen.
Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Nowruz
Nowruz
Nowrūz is the name of the Iranian New Year in Iranian calendars and the corresponding traditional celebrations. Nowruz is also widely referred to as the Persian New Year....
(beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.
The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."
A thousand years later, the inhabitants of Rhodes
Rhodes
Rhodes is an island in Greece, located in the eastern Aegean Sea. It is the largest of the Dodecanese islands in terms of both land area and population, with a population of 117,007, and also the island group's historical capital. Administratively the island forms a separate municipality within...
created the 'general average
General average
The law of general average is a legal principle of maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency...
', which allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage.
The ancient Athenian "maritime loan" advanced money for voyages with repayment being cancelled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.
The Greeks
Ancient Greece
Ancient Greece is a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Included in Ancient Greece is the...
and Romans
Ancient Rome
Ancient Rome was a thriving civilization that grew on the Italian Peninsula as early as the 8th century BC. Located along the Mediterranean Sea and centered on the city of Rome, it expanded to one of the largest empires in the ancient world....
introduced the origins of health and life insurance c. 600 BCE when they created guilds called "benevolent societies" which cared for the families
Family
In human context, a family is a group of people affiliated by consanguinity, affinity, or co-residence. In most societies it is the principal institution for the socialization of children...
of deceased members, as well as paying funeral
Funeral
A funeral is a ceremony for celebrating, sanctifying, or remembering the life of a person who has died. Funerary customs comprise the complex of beliefs and practices used by a culture to remember the dead, from interment itself, to various monuments, prayers, and rituals undertaken in their honor...
expenses of members. Guild
Guild
A guild is an association of craftsmen in a particular trade. The earliest types of guild were formed as confraternities of workers. They were organized in a manner something between a trade union, a cartel, and a secret society...
s in the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...
served a similar purpose. The Talmud
Talmud
The Talmud is a central text of mainstream Judaism. It takes the form of a record of rabbinic discussions pertaining to Jewish law, ethics, philosophy, customs and history....
deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.
Medieval and Early modern
Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in GenoaGenoa
Genoa |Ligurian]] Zena ; Latin and, archaically, English Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria....
in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa
Genoa
Genoa |Ligurian]] Zena ; Latin and, archaically, English Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria....
in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance. The first printed book on insurance was the legal treatise On Insurance and Merchants' Bets by Pedro de Santarém (Santerna), written in 1488 and published in 1552.
Insurance became far more sophisticated in post-Renaissance
Renaissance
The Renaissance was a cultural movement that spanned roughly the 14th to the 17th century, beginning in Italy in the Late Middle Ages and later spreading to the rest of Europe. The term is also used more loosely to refer to the historical era, but since the changes of the Renaissance were not...
Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
, and specialized varieties developed. The will of Robert Hayman
Robert Hayman
Robert Hayman was a poet, colonist and Proprietary Governor of Bristol's Hope colony in Newfoundland.-Early life and education:...
, written in 1628, refers to two policies he has taken out with a wealthy Londoner: one of life insurance and one of marine insurance.
Toward the end of the 17th century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London
Lloyd's of London
Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...
remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London
Great Fire of London
The Great Fire of London was a major conflagration that swept through the central parts of the English city of London, from Sunday, 2 September to Wednesday, 5 September 1666. The fire gutted the medieval City of London inside the old Roman City Wall...
, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon
Nicholas Barbon
Nicholas If-Jesus-Christ-Had-Not-Died-For-Thee-Thou-Hadst-Been-Damned Barebon who traded as Nicholas Barbon was an English economist, physician and financial speculator. He is counted among the critics of mercantilism and was one of the first proponents of the free market...
opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.
In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. This payment model continued until the start of the 20th century in some jurisdictions (like California), where all laws regulating health insurance actually referred to disability insurance.
The first insurance company in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
underwrote fire insurance and was formed in Charles Town (modern-day Charleston
Charleston, South Carolina
Charleston is the second largest city in the U.S. state of South Carolina. It was made the county seat of Charleston County in 1901 when Charleston County was founded. The city's original name was Charles Towne in 1670, and it moved to its present location from a location on the west bank of the...
), South Carolina
South Carolina
South Carolina is a state in the Deep South of the United States that borders Georgia to the south, North Carolina to the north, and the Atlantic Ocean to the east. Originally part of the Province of Carolina, the Province of South Carolina was one of the 13 colonies that declared independence...
in 1732, but it provided only fire insurance.
German and British government programs
GermanyHistory of Germany
The concept of Germany as a distinct region in central Europe can be traced to Roman commander Julius Caesar, who referred to the unconquered area east of the Rhine as Germania, thus distinguishing it from Gaul , which he had conquered. The victory of the Germanic tribes in the Battle of the...
built on a tradition of welfare programs in Prussia and Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von Bismarck
Otto von Bismarck
Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg , simply known as Otto von Bismarck, was a Prussian-German statesman whose actions unified Germany, made it a major player in world affairs, and created a balance of power that kept Europe at peace after 1871.As Minister President of...
introduced old age pensions, accident insurance, medical care and unemployment insurance that formed the basis of the modern European welfare state. His paternalistic programs won the support of German industry because its goals were to win the support of the working classes for the Empire and reduce the outflow of immigrants to America, where wages were higher but welfare did not exist.
After 1905, led by the Liberal Party
Liberal Party (UK)
The Liberal Party was one of the two major political parties of the United Kingdom during the 19th and early 20th centuries. It was a third party of negligible importance throughout the latter half of the 20th Century, before merging with the Social Democratic Party in 1988 to form the present day...
, the British introduced a system of social insurance as well. It was greatly expanded after 1944.
Colonial
Benjamin FranklinBenjamin Franklin
Dr. Benjamin Franklin was one of the Founding Fathers of the United States. A noted polymath, Franklin was a leading author, printer, political theorist, politician, postmaster, scientist, musician, inventor, satirist, civic activist, statesman, and diplomat...
helped to popularize and make standard the practice of insurance, particularly Property insurance
Property insurance
Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main...
to spread the risk of loss from fire, in the form of perpetual insurance
Perpetual Insurance
Perpetual insurance is a type of homeowners insurance policy written to have no term, or date, when the policy expires. From the effective start date, the coverage exists for perpetuity. The insured deposits money, called a deposit premium, with the insurer for insurance for the life of the risk...
. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.
The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests created a comparable relief fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived.
19th century
Most insurance companies operated locally. The ambitious ones expanded geographically in the 1830s, such as the New York Life Insurance and Trust Company in upstate New York, and the Baltimore Life Insurance Company in the Mid-Atlantic and Upper South. They built a network of agents to develop markets in different cities. The goal was to only insure people "of sound health, and of sober habits, without hereditary disease, and not belonging to families remarked for short lives."The company had to judge the reliability of agents, who sought out clients, canceled dubious policies, and judged the health of potential customers. The agents were not medical men, but they were instructed to ask applicants some standard questions:- "Is he now in good health, and does he usually enjoy good health, or how otherwise? . . . Has he at any time been afflicted with gout, asthma, consumption, scrofula, convulsions, palsy, or any other disease likely to impair his constitution? . . . Has he been vaccinated, or had the small pox? . . . Is he of a sedentary turn, or accustomed to much exercise? . . . Do you know of any circumstance which renders an insurance on his life more than usually hazardous?"
A better solution came late in the 19th century when the companies employed doctors who used standardized criteria.
Moral hazards
An important concern for insurance companies was the moral hazard--people might set fires to collect property insurance--or even commit suicide or murder when life insurance was involved. From the opposite angle, religious people refused to consider insurance against God's decisions. Fraud was also a problem, as people lied on applications, broke policy restrictions, or falsifyied their own deaths so their family could collect.Sharon Murphy, "How to Make a Dead Man: Murder, Fraud and Life Insurance in 19th-century America," Financial History, Spring 2010, Issue 97, pp 28-39Slaves
Prior to the Civil War (1861-65), some insurance companies in the South insured the lives of slaves for their owners. In response to bills passed in CaliforniaCalifornia
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
in 2001 and in Illinois
Illinois
Illinois is the fifth-most populous state of the United States of America, and is often noted for being a microcosm of the entire country. With Chicago in the northeast, small industrial cities and great agricultural productivity in central and northern Illinois, and natural resources like coal,...
in 2003, the companies have been required to search their records for such policies. New York Life
New York Life Insurance Company
The New York Life Insurance Company is one of the largest mutual life-insurance companies in the United States, and one of the largest life insurers in the world, with about $287 billion in total assets under management, and more than $15 billion in surplus and AVR...
for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation
Emancipation Proclamation
The Emancipation Proclamation is an executive order issued by United States President Abraham Lincoln on January 1, 1863, during the American Civil War using his war powers. It proclaimed the freedom of 3.1 million of the nation's 4 million slaves, and immediately freed 50,000 of them, with nearly...
of 1863.
Social Security
Until the passage of the Social Security Act in 1935, the federal government had never mandated any form of insurance upon the nation as a whole, but this program expanded the concept and acceptance of insurance as a means to achieve individual financial security that might not otherwise be available. That expansion experienced its first boom market immediately after the Second World War with the original VA Home Loan programs that greatly expanded the idea that affordable housing for veterans was a benefit of having served. The mortgages that were underwritten by the federal government during this time included an insurance clause as a means of protecting the banks and lending institutions involved against avoidable losses. During the 1940s there was also the GI life insurance policy program that was designed to ease the burden of military losses on the civilian population and survivors.During the 1970s and 1980s there was a growth in support for the requirement for drivers to have insurance as a means of proving financial responsibility since it was recognized that the automobile, in the case of an accident, could cause significant collateral damage. It soon followed that car insurance became a mandatory requirement for all drivers.
Health insurance in the United States
Accident insurance was first offered in the United States by the Franklin Health Assurance Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad and steamboat accidents. Sixty organizations were offering accident insurance in the US by 1866, but the industry consolidated rapidly soon thereafter. In 1887, the African American workers in Muchakinock, Iowa, a company town, organized a mutual protection society. Members paid fifty cents a month or $1 per family for health insurance and burial expenses. In the 1890s, various health plans became more common. group disability policyDisability insurance
Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary's earned income against the risk that a disability will make working uncomfortable , painful , or impossible...
was issued in 1911.
Commercial insurance companies began offering accident and sickness insurance (disability insurance) as early as the mid-19th century. The first group medical plan was purchased from The Equitable Life Assurance Society of the United States by the General Tire & Rubber Company in 1934. Before the development of medical expense insurance, patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-for-service
Fee-for-service
Fee-for-service is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care...
business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and also most prescription drugs, but this was not always the case.
During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis. The first group pre-payment plan was created at the Baylor University
Baylor University
Baylor University is a private, Christian university located in Waco, Texas. Founded in 1845, Baylor is accredited by the Southern Association of Colleges and Schools.-History:...
Hospital in Dallas, Texas. This concept became popular among hospitals during the Depression, when they were facing declining revenues. The Baylor plan was a forerunner of later Blue Cross plans. Physician associations began offering pre-paid surgical/medical benefits in the late 1930s Blue Shield plans. Blue Cross and Blue Shield plans were non-profit organizations sponsored by local hospitals (Blue Cross) or physician groups (Blue Shield). As originally structured, Blue Cross and Blue Shield plans provided benefits in the form of services rendered by participating hospitals and physicians ("service benefits") rather than reimbursements or payments to the policyholder.
Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations. The Ross-Loos Clinic, founded in Los Angeles in 1929, is generally considered to have been the first health maintenance organization (HMO). Henry J. Kaiser
Henry J. Kaiser
Henry John Kaiser was an American industrialist who became known as the father of modern American shipbuilding. He established the Kaiser Shipyard which built Liberty ships during World War II, after which he formed Kaiser Aluminum and Kaiser Steel. Kaiser organized Kaiser Permanente health care...
organized hospitals and clinics to provide pre-paid health benefits to his shipyard workers during World War II. This became the basis for Kaiser Permanente
Kaiser Permanente
Kaiser Permanente is an integrated managed care consortium, based in Oakland, California, United States, founded in 1945 by industrialist Henry J. Kaiser and physician Sidney Garfield...
HMO. Most early HMOs were non-profit organizations. The development of HMOs was encouraged by the passage of the Health Maintenance Organization Act of 1973
Health Maintenance Organization Act of 1973
The Health Maintenance Organization Act of 1973 , also known as the HMO Act of 1973, 42 U.S.C. § 300e, is a law passed by the Congress of the United States that resulted from discussions Paul Ellwood had with what is today the Department of Health and Human Services...
. The first employer-sponsored hospitalization plan was created by teachers in Dallas, Texas
Dallas, Texas
Dallas is the third-largest city in Texas and the ninth-largest in the United States. The Dallas-Fort Worth Metroplex is the largest metropolitan area in the South and fourth-largest metropolitan area in the United States...
in 1929. Because the plan only covered members' expenses at a single hospital, it is also the forerunner of today's health maintenance organization
Health maintenance organization
A health maintenance organization is an organization that provides managed care for health insurance contracts in the United States as a liaison with health care providers...
s (HMOs).
Employer-sponsored health insurance plans dramatically expanded as a result of wage controls during World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
. The labor market was tight because of the increased demand for goods and decreased supply of workers during the war. Federally imposed wage and price controls prohibited manufacturers and other employers raising wages high enough to attract sufficient workers. When the War Labor Board declared that fringe benefits, such as sick leave and health insurance, did not count as wages for the purpose of wage controls, employers responded with significantly increased benefits.
Employer-sponsored health insurance was considered taxable income until 1954.
In the United States, regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
of the insurance industry is highly Balkanized
Balkanization
Balkanization, or Balkanisation, is a geopolitical term, originally used to describe the process of fragmentation or division of a region or state into smaller regions or states that are often hostile or non-cooperative with each other, and it is considered pejorative.The term refers to the...
, with primary responsibility assumed by individual state
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization
National Association of Insurance Commissioners
The National Association of Insurance Commissioners is an Internal Revenue Code Section 501 non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. The NAIC was formed in 1871. Its current...
. In recent years, some have called for a dual state and federal regulatory system for insurance similar to that which oversees state banks and national banks.
See also
- Amicable Society for a Perpetual Assurance OfficeAmicable Society for a Perpetual Assurance OfficeAmicable Society for a Perpetual Assurance Office is considered the first life insurance company in the world. Anzovin, p. 121 The first life insurance company known of record was founded in 1706 by the Bishop of Oxford and the financier Thomas Allen in London, England...
, first life insurance company - InsuranceInsuranceIn law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...