Risk Pooling And The History Of Insurance
Risk pooling is a concept that keeps coming up when talking about social organization and relationship dynamics
. Linked to risk aversion and to the safety of what is known, risk pooling is at the basis of many agreements and behaviors that are now almost intrinsic to human beings and that are usually mediated by economic and political organisms.One of the most common examples of how aversion to risk and sharing of uncertainty has influenced our social norms and constructions is that of insurances. Whether they are in the form of a savings bond, life insurances or against fire and theft, the truth is that insurance companies act as a redistributive organism of risk and protection against events over which people have little or no control.
The first methods of risk distribution took place well before Christ, and were born among those who needed mechanisms of protection for their goods or patrimony against attacks or damaging weather conditions. Merchants were the first to protect themselves against the loss of transport means or of goods, as well as those able to provide protection in exchange of an ongoing payment or offer.
In the same way, today insurance companies agree to provide to the beneficiaries of a family insurance whenever events like death or incidents damage its quality of life.
The Romans had their own versions of the life insurance policy. The so called benevolent societies took care of all the expenses of a members family in the case of death, who regularly paid a fee during his life in order to be part of the guild.
In the Middle Age, the relationship among landlords and their serfs had clearly at its core risk pooling. The population paid religiously the tithe in exchange for their protection in case of external threats, as well as food and a shelter in particularly unfavorable seasons. The fee, usually paid in kind in the form of harvested goods or crafts worked as the monthly or annual payments we are used to today, while the sense of security and the actual protection whenever a dangerous event took place is the equivalent to the premium paid by the insurance company at the end of the contract.
The seventeenth century was probably the most significant one in the process of formalization and public intervention in the field of insurances. Famous is the story of Englands first insurance company, founded o 1680 after the Great Fire of London in 1666 damaged over ten thousand houses.
Once the businesses dedicated to insurance policies spread all across Europe, by the hand of people with capital and for the people with capital, the market developed rapidly, especially during the twentieth century when financial services positioned themselves as a way to protect assets against events like wars and economic crisis. Moreover, given the increasing competition in the market, insurance companies decided to democratize access to this products to a larger audience with lower prices, a wider variety of options and the chance of contracting an insurance online, though all of this inevitably comes with lower interest rates.
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