The history of U.S. insurance

Insurance is so important in our daily lives that it is hard to imagine life without it. But for most of the colonial period, this was exactly what the Americans did. At the same time as the rise of insurance in the United States, the idea of ​​a single country-the United States-began to take shape and was put forward by a founding father of that country.Let’s take a look at the history of U.S. insurance

Key points

  • The history of the first insurance company in the United States can be traced back to the colonial era: the Philadelphia Contributionship, founded by Ben Franklin and others in 1752.
  • Throughout the history of the United States, with the emergence of new risks (such as automobiles), new types of insurance have also continued to develop.
  • In the late 19th century, scandals and shady practices shook the young insurance industry.
  • According to the McAllen-Ferguson Act of 1945, insurance companies are not subject to most federal regulations, but rather to state laws.
  • In recent years, the Internet has had a significant impact on the way insurance sales and insurance companies assess risks.

Benjamin Franklin: America’s first insurance company

Property insurance was certainly not a little-known concept in the 18th century: the famous British insurance company Lloyd’s of London was founded in 1688. But it wasn’t until the mid-1700s that the American colonies became prosperous and mature enough to adopt this concept. This happened in Philadelphia, which had 15,000 residents and was one of the largest cities in North America at the time.

The city is plagued by the fear of fire. Just like London in the 1600s, houses were almost entirely made of wood. To make matters worse, they were built very close together. This was originally for safety reasons, but as the city developed, developers built houses very close to each other for the same reasons as today-to accommodate as many houses as possible on their land. Although much of Philadelphia has wide streets and masonry structures, fires are still a cause for concern.

In 1752, Benjamin Franklin and several other major citizens established a Philadelphia fire damage insurance premium based on a London company.The first fire insurance company in the United States, it is a mutual insurance company, Franklin in Pennsylvania Gazette (He owns). Like the modern insurance company, the company sends inspectors to evaluate the property owners applying for insurance and reject those properties that do not meet its standards; the rate is based on the risk assessment of the property. Contributionship issued a seven-year policy and paid claims from the capital reserve.

New risks, new insurance

The Philadelphia Endowment Fund set new standards for construction because it refused to insure properties it believed to be a fire hazard. The standards it uses to evaluate buildings will one day evolve into building codes and zoning laws.

Seven years later, Franklin also played an important role in the establishment of the Presbyterian Ministerial Fund, the first life insurance company in the United States.

At the time, various religious authorities were angry at putting the value of the dollar above human lives, but their criticism eased as they realized that paying death benefits would help protect widows and orphans. The Industrial Revolution subsequently brought the necessity of commercial insurance and disability insurance for companies and individuals.

Throughout the history of the United States, the types of insurance provided by the company have been expanded to deal with new risks. For example, in 1897, the Travelers Insurance Company sold its first auto insurance policy, and in 1919 it sold its first aircraft liability insurance. As modern life becomes more and more complicated, new types of insurance continue to emerge.

Scandal and fraud, growth and regulation

With the rapid development of insurance companies and insurance products in the late 19th century, this young industry was quickly plagued by fraud and suspicious behavior. Scandals range from companies that sell insurance policies but don’t have the funds to pay claims (but operate like a Ponzi scheme) to insurance companies that ruthlessly drive competitors out of competitors in an attempt to establish a monopoly. Many states passed laws to solve these problems, but abuse was still rampant in the early 1900s.

In 1935, the “Social Security Act” came into effect, providing old age assistance and unemployment compensation subsidies to the states. Taking away the territory of some insurance companies, it sent a clear signal to encourage the industry to start self-regulation because it feared that the government would intervene more. The Second World War caused wages to freeze, and employers were eager to attract workers still in the country and began to provide group life and health insurance as employee benefits. These big insurance policies are often provided by companies that are large enough to provide a large number of insured workers.

As a result, the power of major insurance companies swelled, leaving small companies and most night operators starved to death. In 1944, the Supreme Court ruled that the insurance industry should be under federal supervision. However, Congress passed the McAllen-Ferguson Act in 1945, returning oversight to the state level. Today, supervision is still mainly at the state level.

At the same time, the scale of large insurance companies continues to expand, especially when they merge with each other and with other giants in the financial industry. Many of these companies now provide a range of financial services that go far beyond insurance.

Insurance in the U.S. Today

The development of the Internet has promoted the most profound changes in the U.S. insurance industry in recent years. Insurance buyers are increasingly buying insurance online, so insurance companies have changed many sales and underwriting practices. The global influence of the Internet has also led to further mergers among financial services companies as they compete in an increasingly globalized market.


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