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The history of business insurance

Insureon Staff.
By Insureon Staff
December 17, 2019
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The insurance industry is rooted in the principle of people coming together to mitigate risks and respond to fires, theft, and other dangers.
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Insurance as a concept goes nearly as far back as civilization itself. If a person’s house burned down, neighbors would often help them rebuild – the earliest form of property insurance. When merchants encountered pirates, other merchants and sailors would collaborate on ways to minimize risks and help each other. Basically, the history of insurance is grounded in people finding ways to reduce risks and respond to unexpected and often unfortunate incidents. 

The birth of formal insurance

Insurance as a formal service began in Great Britain when merchants transporting goods overseas came together to finance their voyages. By underwriting their business property through a central organization and sharing the financial burden through fees, they minimized the risks of sailing for everyone. 

For these British merchants, their plan helped address piracy, inclement weather, and other sailing hazards. Their businesses came with great risk but also with the potential for great reward, and finding a way to protect their assets from these dangers was a necessity. Underwriting risks simply made good economic sense.

In the early days of insurance, underwriters perfected different types of policies but also sold them. As the industry developed, however, underwriters began requiring greater specialization and could no longer effectively both write policies and handle sales. This gap necessitated having additional workers in charge of sales and customer service, and insurance agents have been part of the industry ever since.

The first insurance company

The first official insurance company formed in 1667 after the Great Fire of London. At the time, London was one of the world's great centers of commerce and culture, and the idea that so much of the city could be destroyed in a disaster inspired the era’s brightest financial minds to find a solution. 

Britain’s Nicholas Barbon formally opened The Fire Office to insure homes against fire damage, thus debuting what is essentially modern property insurance. Fire is a basic risk that any business should consider protecting itself against, and fire insurance can be purchased separately or added to a business owner’s policy.

Insurance comes to the U.S.

Benjamin Franklin founded the first U.S. insurance company in 1752, called The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. While the name doesn't exactly roll off the tongue, it spells out what the company did (and continues to do).

The insurance industry is built on planning for unexpected events, and for our forefathers, those events were fires. Business insurance protects companies from unforeseen circumstances at a more specialized level, acknowledging, for instance, that the potential damages and losses for a business owner with multiple buildings are greater than that of a homeowner. Most companies have physical property that is critical to their business and needs to be safeguarded against loss or damage, which is why they purchase commercial property insurance.

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Further developments in insurance history and specialization 

As businesses became more complex and risks more diversified, the insurance industry evolved and began offering additional products. Where once the top priority was keeping business buildings safe from fire damage, it became equally important for a business to protect its employees from work accidents, plan for potential lawsuits, and keep its digital data safe.

Businesses today typically purchase industry-specific insurance policies customized to protect against the varied risks that they face. Small business owners receive much of their protection from two major insurance policies: a business owner’s policy (which combines general liability insurance and commercial property insurance), and professional liability insurance. While there are many subcategories within these two policies, they comprise the two main pillars of what is generally called business insurance.

The advent of workers' compensation and automobile insurance

As businesses grow and expand their global footprints, their insurance needs typically increase. It takes only one employee error to compromise the entire organization, so business insurance is necessary to protect all workers – and sometimes the general public. 

The explosion of industry in the late 19th century and early 20th century stands as a prime example of evolution in the history of insurance. As companies grew and expanded, they increasingly saw the need to protect workers. The United Kingdom passed the Workmen's Compensation Act in 1897, which mandated that companies have a means to help workers who are injured in an on-the-job accident.

Workers’ compensation insurance not only protects businesses and employees who suffer job-related injuries, but also everyone at an organization, since an isolated accident won’t impact a company so much that it must lay off others or shut down entirely. Workers' compensation insurance protects all parties at a business, and most U.S. states require it for businesses with one or more employees.

The growing need to protect workers from changing conditions was not the only insurance industry development during that era, as vehicles gained popularity at the beginning of the 20th century. U.S. states began offering personal automobile insurance in the late 1920s, and by the 1970s, it was mandatory in almost every state. However, personal automobile insurance doesn’t always cover accidents that occur while driving for work, so many businesses carry commercial auto insurance to further protect themselves.

Insurance in the digital age

The rise of the internet in the 1990s again prompted the insurance sector to evolve to keep pace with technological advances. As more businesses began collecting and storing customer information digitally, cyber liability insurance became increasingly important. 

If your business suffers a data breach that exposes customer information, cyber liability insurance will help pay for the costs of determining the nature of the breach, notifying affected customers and providing them with credit-monitoring services, and restoring your company’s reputation.

The internet has also made it much easier for small businesses to research and purchase insurance. With Insureon, businesses can quickly fill out an online application to receive free quotes from multiple top-rated, trusted U.S. carriers. Once you select policies that fit your business needs, you can initiate coverage in less than 24 hours.

Business owners must cover all bases

Whether you have just started a small business or are growing into a much larger company, you must know your risks and how to mitigate them. You can't prevent every mishap, but you can reduce the amount of time and money they cost your business. Insurance companies manage their own risks carefully in order to provide their services, so they prefer to work with clients that do everything they reasonably can to prevent problems.

Public opinion is important, and in the digital age where information spreads fast, companies that appear to wrong customers or taxpayers often face immediate backlash. This may not always be fair, but it is a reality that businesses must address. Business insurance is not only a way to protect your property and employees, but it's also a critical part of maintaining a good reputation.

From its beginnings as a way to rebuild after a fire, insurance has evolved to protect companies from more risks in a world with increasingly higher stakes. Since one mistake can derail or destroy a hard-built company, you need to make sure that you're not left having no insurance, not enough insurance, or the wrong kind of insurance for your unique business.

Compare business insurance quotes from trusted carriers with Insureon

Complete Insureon’s easy online application today to compare insurance quotes from top-rated U.S. carriers. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.

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