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Insurance Introduction and Overview


Insurance Introduction and Overview Karen Breda Insurance Law Research January 13, 2009 Insurance Introduction What is insurance ? Why do we need it? – PowerPoint PPT presentation

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Title: Insurance Introduction and Overview

Insurance Introduction and Overview
  • Karen Breda
  • Insurance Law Research
  • January 13, 2009

Insurance Introduction
  • What is insurance?
  • Why do we need it?
  • Why should we study it?
  • How has the insurance industry and the law of
    insurance evolved?

What is Insurance?
  • Commercial mechanism for transferring risk and
    spreading loss
  • Economic Concept of Insurance
  • 1. Insurer offers policy to cover specified
  • 2. Insurer collects policy premiums from
  • 3. Insurer invests premiums
  • 4. Insurer pays money to insured customers in
    the event of losses covered by policy.

What is Insurance
  • Theoretically, everybody comes out ahead (so long
    as losses do not exceed returns of invested
    premiums and all parties honor their contractual
  • Theoretically, the insurance industry bridges
    private interests and public good.

Why do we need insurance?
Why do we need insurance?
Why study insurance?
  • The role of insurance in the practice of law
  • -- litigation practice
  • -- business and corporate law
  • -- real estate and estate planning
  • -- law office operations

Why study insurance?
  • The effect of insurance (or lack thereof) on
    individual lives.
  • The effect of insurance and insurance industry
    trends upon law, society and economy (and vice
  • Survival (wolf pack phenomena) risk protection
    a primary biological goal

Insurance Law
  • Sources of Insurance Obligations
  • Policy/Insurance Agreement
  • Common Law (contract theories tort theories)
  • Statutes
  • Regulations
  • The law of insurance is multi-layered. The
    prudent researcher will consider each of the
    layers when approaching a research problem.

The History of Insurance
  • Historical context provides insight and
    perspective into todays insurance industry

The History of Insurance
  • 3000 B.C.E. Mesopotamian merchants assess risk
    surcharges in transactions with caravan
    operators and traders to protect their capital.
  • 1750 B.C.E. Code of Hammurabi formalizes
    concepts of bottomry and respondentia
    (protection against loss of hull and cargo,
    respectively) the underpinnings of maritime

History of Insurance
  • 1000 B.C.E. Practice of jettisoning cargo to
    save ships leads to the concept of general
    average (pro-rata distribution of loss).
  • 300 B.C.E. 450 A.D. Prototypical insurance
    exchange in ancient Athens collegia (cf. mutual
    company) to cover members burial expenses in
    Roman Empire.

History of Insurance
  • 450 1100 A.D. Dark Ages. Vestiges of risk
    management continue in merchant and artisan
  • 12th Century. Marine insurance re-emerges in the
    Italian Renaissance. Polizzas (policies) are
    used to record insurance undertakings. Hanseatic
    League attempts to regulate marine insurance.

History of Insurance
  • 1574 Queen Elizabeth I grants to Richard Candler
    the right to establish an insurance office in the
    Royal Exchange Building for the preparation and
    registration of policies.
  • 1601 Britains Parliament enacts the Assurances
    Act of 1601 creating an assurance commission for
    resolving policy disputes. 43 Eliz. 1 c. 12.

Assurance Act of 1601
  • By means of which Policies of Assurance it
    cometh to pass upon the Loss or perishing of any
    Ship, there followeth not the undoing of any Man,
    but the Loss lighteth rather easily upon many
    than heavily upon few, and rather upon them that
    adventure not than those that do adventure.

History of Insurance
  • 1600s Insurance brokers Shipowners send clerks
    to solicit investors for risk participation
    these clerks become adept at evaluating risk and
    locating insurers they open agencies.

History of Insurance
  • 1666 Great Fire of London. Shortly thereafter,
    Nicholas Brabon opens the first fire insurance
    office in England. It eventually becomes The
    Phoenix Assurance Company. Over the next two
    decades, more fire insurance companies start up.

History of Insurance
  • 1690s Fire insurance companies form the first
    professional fire brigades.

Lloyds of London
  • Late 1600s Edward Lloyds Coffee House.
    Seafarers, merchants and insurers meet for
    insurance business and coffee.

Lloyds of London
  • 1688 Edward Lloyd starts a shipping newspaper and
    reads out shipping news from a pulpit in his
    coffee house attracts even more shipowners and

History of Insurance
  • 1721 In Philadelphia, John Copson opens a
    clearinghouse for underwriters and those seeking
    polices of insurance. Shortly thereafter,
    insurance offices open in Boston and New York,
    marking the beginning of Americas insurance

History of Insurance
  • 1751 Benjamin Franklin and other capitalists
    start the Philadelphia Contributorship, the first
    successful fire insurance company in America.

History of Insurance
  • Mid-18th Century Many insurance companies are
    more likely than banks to have substantial cash
    reserves. Insurance companies function as
    lending institutions.
  • Mid-18th Century Insurance underwriting is
    prosperous industry in America. Lloyds of
    London also draws a significant share of Colonial
    Americas underwriting business (capitalization).

History of Insurance
  • 1790s With the centralization of a national
    monetary system in the United States, insurance
    companies become a primary source of finance
    capital and begin expanding into new markets.
    U.S. insurance companies gain political and
    cultural influence.

History of Insurance
  • Pre-1800s Life insurance is seen as a form of
    gambling/immorality in U.S. and U.K. Gamblers
    were taking out policies on unrelated third
    parties and turning profits when the third
    parties died.

History of Insurance
  • In Great Britain, the Life Assurance Act of 1774
    prohibits insurance gambling requires that
    policy holder have an interest in life insured.
    14 Geo. 3 ch. 48.
  • In the U.S., the common law requirement of
    insurable interest serves same purpose.

History of Insurance
  • 1800-1840s Life insurance evolves from gambling
    vehicle to method of providing for widows and
    orphans. With this moral shift, life insurance
    becomes a booming industry.
  • Life insurance profiteering continues today in
    the form of viatical settlements.

History of Insurance
  • Pre-1900s Public policy prohibits insuring
    against civil liability for negligence. Insuring
    against negligence is seen as a moral hazard
  • In fact, a policyholders negligence in causing a
    loss (barratry) was considered a valid defense to
    an insurance claim.

History of Insurance
  • 1886 Supreme Court abolishes barratry defense
    in Phoenix Insurance Co. v. Erie Western
    Transportation Co., 117 U.S. 312 (1886), paving
    the way for liability insurance.
  • 1887 26 textile manufacturers and community
    leaders in Massachusetts form the American Mutual
    Liability Insurance Company, the first U.S.
    liability insurer.

History of Insurance
  • Industrialization and mechanization of society
    leads to greater risk of injury, which, in turn,
    leads to acceptance of transfer of risk of
  • With the advent of liability insurance, the
    number of tort lawsuits increased dramatically.
  • In 1880, 120 negligence lawsuits were filed in
    Boston by 1900 the number of negligence suits
    was 3300.

Rise of Risk Management
  • 1906 S.F. Earthquake
  • Lloyds underwriter, Cuthbert Heath, orders
    agents to pay all claims in full regardless of
    policy terms. Lloyds pays 50 Million in

Rise of Risk Management
  • Public confidence in insurance industry soars
    industry booms risk management innovations new
    types of insurance emerge.

Lloyds of London
  • Today, Lloyds of London is an insurance icon
  • Not an insurance company, but an exclusive
    insurance market

Insurance Fiction
  • Armadillo, by William Boyd
  • The Amount to Carry, by Carter Scholz
  • The Policy, by Bentley Little

Insurance Fiction
  • Stormy Weather, by Carl Hiaasen
  • Coming Up for Air, by George Orwell
  • The Rainmaker, by John Grisham

Lloyds of London Fiction
  • East of the City, by Grant Sutherland
  • Significant Loss, by David Brierly
  • Other Names, by Zoe Fairbairns

Lloyds of London History
  • Against the Gods the Remarkable Story of Risk,
    by Peter L. Bernstein
  • Lloyds of London A Portrait, by H. A. L.

Insurance History
  • Spreading the Risks Insuring the American
    Experience, by John Bogardus
  • Pensions and Insurance Before 1800, by
    Christopher Lewin

Liability Insurance -- History
  • The Liability Century Insurance and Tort Law
    from the Progressive Era to 9/11, by Kenneth S.

Insurance in Film