The Birth of Insurance: From First Policy to Coffeehouse Contracts

The earliest insurance policies with historical basis emerged in the 14th century, over 600 years ago, but stories embodying insurance concepts actually date back to pre-Common Era times. These stories are documented in “World Insurance History.”

The Code of Hammurabi

About 5,000 years ago, one midday, a caravan of 30 camels loaded with goods was crossing the Egyptian desert when a sandstorm hit. The merchants fled immediately, leaving the camels and goods buried under the dunes, with only 8 fast-running camels and their cargo surviving. Before departure, the merchants had agreed that if camels or goods were lost during transport, those without losses would share part of their profits with those who suffered losses. If no one had losses, each merchant would set aside a small portion of profits as a fund for future compensation, collectively sharing risks. This spirit of mutual benefit was further refined and became the Code of Hammurabi in the Babylonian Kingdom, the oldest and most complete legal code preserved to this day.

Chinese Merchants’ Cross-Shipment

In China about 3,000 years ago, many merchants transported goods along the Yangtze River. Due to rudimentary shipbuilding technology and the river’s strong winds and high waves, accidents were frequent. One day, a young merchant named Liu Mu proposed an idea: instead of loading one merchant’s goods entirely on a single ship, goods should be cross-loaded among merchants. At first, others didn’t understand, but they followed his suggestion. As a result, when one ship sank, the rest arrived safely, and everyone realized the principle of risk distribution through dispersing and cross-loading goods.

Although the accuracy of these two stories cannot be verified, they serve as a reference that the concept of insurance likely originated in ancient civilizations before the Common Era. “World Insurance History” also mentions that during the Babylonian and Phoenician periods, ship owners would mortgage their ships and goods to marine insurers in exchange for funds equal to the value of the goods, with the agreement to repay upon safe arrival. If misfortune occurred en route, ship owners could be exempt from repaying all or part of the funds based on the extent of loss. Conversely, if they arrived safely, ship owners had to repay the funds plus interest, with the interest component resembling modern insurance premiums.

The oldest known insurance policy is preserved in the National Library of Genoa, Italy. This policy was a contract signed on October 23, 1347, between the owner of the Italian ship “Santa Clara” and merchant George Lecavellum, covering risks for the voyage from Genoa to Majorca.

The late 14th century was a time of fervent Renaissance movement in Europe. Amid the flourishing of culture and arts, vibrant commercial activities unfolded in Italy and across Europe. Insurance gradually developed after the 15th century, spreading with international trade from Italy through Spain to the Netherlands, Britain, Germany, and eventually worldwide.

Another record of early insurance dates to March 13, 1350, when insurance merchant Leonardo Cattaneo insured a ship carrying wheat from Sicily to Tunis.

By 1384, the first insurance contract with modern significance was issued in Pisa, Italy. This policy covered a batch of goods transported from Arles in southern France to Pisa, Italy, specifying losses from “marine accidents” such as ship damage, grounding, fire, or sinking, as well as losses from “piracy, jettison, capture, or raids.” Although these terms were simple, they remain relevant today.

From Italy to other European cities, a key development occurred in Britain. According to a 1483 British parliamentary act, “a group of foreign merchants from Italy, including Venetians, Florentines, and Sicilians, settled in London and other cities, stockpiling many goods imported from abroad in warehouses, awaiting price increases.” Along with the merchants and goods came the insurance business. By around 1500, Britain already had underwriters; in the 16th century, Italian merchants congregated on Lombard Street in London, making it a center for marine insurance activities.

Before Italians introduced insurance to Britain, they first brought coffee house culture. Lombard Street became an insurance center largely due to coffee houses. In 1652, Pasqua Rosee from Italy opened the first coffee shop in London, leading to their proliferation. In 1688, Edward Lloyd established a coffee house named after himself near Tower Street in London. Located near the Thames River, it attracted many shipping and trade merchants daily, waiting for ships to return and gathering navigation news. With communication underdeveloped at the time, Edward turned the coffee house into a center for disseminating shipping information to draw customers. Besides its shipping theme, he added a large notice board to report the latest shipping news, attracting numerous ship owners and merchants. In 1692, he relocated the coffee house to Lombard Street. From then on, Edward Lloyd’s Coffee House became a hub for shipping information exchange, and insurance brokers used it as their operating address.

Edward Lloyd passed away in 1713, and the coffee house continued under new ownership. In 1734, a publication dedicated to shipping news, Lloyd’s List, was launched, by which time Edward Lloyd’s Coffee House had become a private center for marine insurance. Later, merchants, brokers, and underwriters established a new building as an organized institution, officially opening in 1774 and evolving into today’s Lloyd’s of London.

Meanwhile, in the same era as Edward Lloyd’s Coffee House, The Royal Exchange Assurance Corporation and London Assurance Corporation received British royal charters for marine insurance in 1720, monopolizing the British marine insurance market. However, their charters applied only to companies or groups, while Lloyd’s Coffee House underwriters were individual insurers, allowing them to continue operating. It wasn’t until 1824 that the British Parliament revoked the two companies’ 100-year monopoly.

When marine insurance was rapidly developing in 17th-century England, fire insurance emerged due to an accident. On September 2, 1666, a fire broke out in a bakery near London Bridge, which then spread throughout the city, destroying countless homes and buildings, leaving only one-fifth of London unaffected and rendering many people homeless. The fire burned for five full days, known as the Great Fire of London. What did London look like over 300 years ago? Considering Charles Dickens’ “Oliver Twist” was written in the 1830s of the 19th century, depicting a miserable era, it’s hard to imagine the conditions two centuries earlier. One thing is certain: there was no fire brigade in London at the time, so after the fire, a “fire brigade” was established—not as a government rescue operation, but as a business opportunity seized by merchants.

In 1680, Nicholas Barbon gathered three people to raise 40,000 pounds and established Britain’s first fire insurance company, named Fire Office, behind the Royal Exchange office. At the time, premiums were calculated based on house rents, and wooden structures were required to pay double the premium compared to brick and mortar ones. Some clients were landlords rebuilding their homes after the 1666 Great Fire of London.

The Fire Office insurance company not only specialized in fire insurance but also functioned as a fire brigade. Nicholas Barbon founded London’s first fire brigade under an insurance company; policyholders received a metal fire insurance plaque to nail on their houses. In the event of a fire, the brigade could quickly identify clients of their company. Nicholas Barbon was indeed a clever businessman—this approach reduced the insurance company’s payout risks and, to some extent, lowered the chances of fires occurring. His success attracted many followers, leading to the establishment of numerous fire insurance companies. Due to the small scale of these companies and low coverage per policy, some wealthy individuals insured with multiple companies and proudly displayed 7 or 8 plaques on their doors as a status symbol. By 1833, the fire brigades of various insurance companies merged into a unified fire brigade. In 1886, it came under the control of the London government, becoming the predecessor of the London Fire Brigade.

In addition to marine insurance and fire insurance, life insurance also accompanied these early forms. The earliest known life insurance policy was issued in 1399 by the Datini Company in Barcelona, covering Filippozo Soldani’s journey from Barcelona to Italy. At the time, life insurance mainly targeted merchants involved in shipping. As for Britain’s earliest life insurance policy, it was issued on June 18, 1583, by 16 merchants from the London Royal Exchange Insurance Guild, insuring William Gibbons for an amount of 382.23 pounds with a 12-month term. Unfortunately, he passed away exactly one year later on May 8, 1584. However, the 16 merchants refused to pay the claim, arguing that they calculated a month as 28 days, so the policy had already expired. The case went to court, and the judge ruled in favor of the policyholder, stating that according to the customs of the Royal Exchange and Lombard Street, months were calculated based on calendar months, not 28 days each. Additionally, according to “A History of Insurance,” life insurance at the time typically required the insured to have a robust physique and restricted travel outside of British territory during the policy period.

By the early 18th century, two chartered companies in Britain began offering life insurance in 1721 as a supplementary product to marine and fire insurance, but they refused to cover the sick, the elderly, or those with smallpox.

This article is adapted from the book published by the Hong Kong Federation of Insurers and Joint Publishing, Insurance Series: Introduction to Insurance

• Author: Lin Xi’er
• Planner: Hong Kong Federation of Insurers
• Publisher: Joint Publishing (HK) Co., Ltd.
• ISBN: 9789620444562

The Hong Kong Federation of Insurers (HKFI) was established on August 8, 1988, with the aim of promoting and facilitating the development of the insurance industry in Hong Kong. It currently has over 130 member companies and is the recognized representative organization for the insurance industry by the government.

HKFI has maintained close contact and dialogue with authorities, regulatory bodies, and stakeholders to negotiate matters affecting the insurance industry. It also actively enhances the professional standards of the insurance industry and promotes its development, while committing to educating the public on insurance knowledge to strengthen public confidence in the insurance industry.