After 1688 the atmosphere of England was freer, and underwriting
was soon practised without special licence. In 1704 the
societies began to insure household goods and stocks in trade,
and the insurance of personal property rapidly became as
important as that of buildings. In 1706 the Sun Fire Office was
founded, and began to issue policies on both real and personal
property in all parts of England. Other associations arose
in quick succession of which the Union Fire Office, dating from
1714, and the Westminster from 1717, still survive. Before
1720 both fire and marine insurance had become general in all
great centres of trade. But life insurance was as yet hardly
conceived. Sporadic evidences that it was needed, and that men
were feeling after it, occur in very early records. It was a
medieval custom to advance to a mariner goods or money, to
be restored with large additions, but only in case of safe
return; or to contract, for a sum in hand, to ransom him
if captured by pirates, or to pay a fixed amount to his
family if he were lost. To evade the usury laws life annuities
were often sold at a low rate, redeemable for a stipulated
sum. Life estates were sold upon some guess at their probable
duration; and leases, especially of church lands, were made for
one, two or three lives on rude and conventional estimates of
the time they would run. Thus there was a commercial and
social pressure for some intelligent method of valuing life contingencies.
But the direct insurance of life, as a means of
reducing the element of chance in human affairs, was hardly
thought of. Indeed, such contracts were commonly regarded
as mere forms of gambling, and were prohibited in France as
against good morals.
The earliest known policy of life insurance was made in the Royal Exchange, London, on the 18th of June 1583, for £383, 6s. 8d. for twelve months, on the life of William Gibbons. Sixteen underwriters signed it, each severally for his own share, and the premium was 8%. The age of the insured is not referred to, nor was it then considered, except when far advanced, in fixing the premium. Gibbons died on the 29th of May 1584. The underwriters refused to pay, alleging that twelve months, in law, are twelve times twenty-eight days, and that Gibbons had survived the term. The court, of course, enforced payment. A few instances of similar contracts are found, mostly in judicial records, during the 17th century; but every such transaction was justly regarded as a mere wager, at least on the part of the insurer. It could not be otherwise until the principles of probability and the uniformity of large averages were understood and trusted. A few great thinkers were groping for principles which were profoundly to modify the practical reasoning of after-generations. But their work first obtained wide recognition upon the publication of the Ars Conjectandi, the posthumous treatise of Jacques Bernoulli, in 1713. Meanwhile the social need for insurance continued to express itself in empirical efforts, which at least helped to make clearer the problems to be solved. Thus in 1699 “The Society of Assurance for Widows and Orphans” was founded in London, a crude form of what is now called an assessment company. Each of 2000 healthy men under fifty-five years of age was to pay 5s. as entrance fee, 1s. quarterly for expenses, and 5s. at the death of another member; and at his own death his estate should receive £500, less 3%. On default in any payment his interest was forfeited. The society lasted about eleven years, and the accounts of its eighth year are preserved, showing the payment of £5200 upon twenty-four claims. The economic significance of this society lies in its distinct recognition of the principle of association for the distribution of losses. Together with the Friendly Society, it shows that this principle had now been so widely grasped by business men that, when embodied in a practical venture, it found substantial support.
The conception of a corporation as an artificial person to hold property and support obligations uninterrupted by the death of individuals was found in Roman law and custom. Its first use in modern business enterprise was perhaps the Bank of St George in Genoa, about A.D. 1200, a joint-stock company with transferable shares, whose owners were liable only to the amount of their shares. In England the crown, itself the chief and type of corporations sole, was the source of chartered rights, and from about 1600 the principle steadily gained recognition, the advantages of incorporation being attested by the successes of the great trading companies. Experience showed that the corporate form was the obvious remedy for the chief difficulties in the practice of insurance. Single risks were but speculative wagers; a great number must be taken together to obtain a trustworthy average. A larger capital than an average private fortune was demanded as a guaranty, and this capital must not be exposed to the dangers of trade, but set aside for the special purpose. Individual underwriters may die or fail; only a permanent institution can be trusted in long contracts. Several projects were devised on this basis. Early in the 18th century, indeed, the English government refused a charter for marine insurance, declaring that corporate insurance was an untried and needless experiment, while private underwriting was satisfactory and sufficient. But in 1720, when two sets of promoters offered £300,000 each for a charter, exclusive of other associations though not of individuals, to insure marine risks, parliament chartered the Royal Exchange and the London Assurance Company with a monopoly to this extent. The business disappointed its projectors at first, and the government accepted half the price rather than revoke the grant. In 1721 the companies extended their operations to fire insurance throughout England.
Thus the principle of insurance had now become a distinct part of the common stock of thought in enlightened nations, and gradually, by association with successive new ideas, plans and methods, was developed into a business or trade, which before the middle of the 18th century already formed an essential element of the social scheme. Most of the modern forms of insurance against the elements were known, and at least crudely practised. But there was no scientific basis for the business. Premiums were fixed, not by computation from known facts or reasonable assumptions, but by guess and the higgling of the market. Only the competition of capital checked the extortionate demands of underwriters. The first important steps towards a scientific valuation of hazards were taken in dealing with the class of risks hitherto so much neglected, those which depend upon human mortality. Marine and fire insurance had their origin in the pressure of need. The practice began before a theory existed. But life insurance had its origin in the scientific study of the facts of human mortality. Both marine and fire insurance became general before there was any intelligent study of the risks by statistical or mathematical methods, nor can it be said that much progress has since been made towards establishing a scientific basis for the valuation of risks in these classes. But life insurance may be said to have been impossible until the theory of probabilities had become a recognized part of the common stock of ideas.
The value of insurance as an institution cannot be measured by figures. No direct balance-sheet of profit and loss can exhibit its utility. The insurance contract produces no wealth. It represents only expenditure. If a thousand men insure themselves against any contingency, then, whether or not the dreaded event occurs to any, they will in the aggregate be poorer, as the direct result, by the exact cost of the machinery for effecting it. The distribution of property is changed, its sum is not increased. But the results in the social economy, the substitution of reasonable foresight and confidence for apprehension and the sense of hazard, the large elimination of chance from business and conduct, have a supreme value. The direct contribution of insurance to civilization is made, not in visible wealth, but in the intangible and immeasurable forces of character on which civilization itself is founded. It is pre-eminently a modern institution. Some two centuries ago it had begun to influence centres of trade, but the mass of civilized men had no conception of its meaning. Its general application and popular acceptance began within the first half of the 19th century, and its commercial and social importance have multiplied a hundred-fold within living memory. It has done more than all gifts of impulsive charity to foster a sense of human brotherhood and of
