CHAPTER ONE
GENERAL INTRODUCTION
1.1 INTRODUCTION
Insurance is a form of risk management, primarily used to hedge against the risk of a contingent loss; in essence, insurance is simply the equitable transfer of a risk of a loss, from one entity to another, in exchange for a premium1. The history of insurance could be traced to early methods of transferring or distributing risk by Chinese traders as early as the 3rd millennia BC. These merchants travelling treacherous river rapids would cleverly distribute their wares across many vessels, whereby their losses are distributed in which the vessels that are saved from capsizing compensate for the ones that are capsized2. The modern profit insurance manifested in Babylon almost 2000 years B.C. in a contract of loan of trading capital to traveling merchants3. The contract contained a clause that the risk of loss due to robbery in transit was borne by the party providing the loan. In consideration for bearing the risk, the lender calculated interest on the loan at an exceptionally high rate.
The Greeks and Romans introduced the origin of health and life insurance around 600AD, when they organized guilds/benevolent societies such as (collegian and military societies) which afforded members certain benefits, such as proper burial rites, or a financial contribution towards burial costs or traveling expenses or members of the army. In exchange for this benefit, members of the society made regular contribution to it.
Similarly, in this period, the Iranian monarchs were the first to insure their people to some extent, formalizing the process by registration thereof at Court6. In accordance with translation, the beginning of the Iranian new year, the heads of different ethnic groups presented gifts to the monarch, the purpose of these gifts was to ensure (insure) that whenever the gift-giver was in trouble, the monarch, (and the Court) would help him. In return, whenever the giver was in trouble or needed finance, the Court would check the gifts registration, and could even-if the amount exceeded 10,000 Derik double that in return.7
All these instances gave effect to the concept of mutual assistance in case of loss, but the actual concept of mutual assistance came to the fore in the guilds and similar associations and societies which existed in Europe and England during the middle ages8.
These associations afforded members or their dependant assistance in case of loss caused by perish such as fire, shipwreck, theft, sickness or death. Separate insurance contracts (i.e. insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance, insurance became far more sophisticated in post renaissance Europe, and specialized varieties developed.
