MTHEL CLASS 1
HISTORY OF INSURANCE
1757 London, England. Petition suggested purchasing life insurance incase a loved
ones death which would cause great poverty. Asked for opportunity to form a
company to sell such insurance. There were no other strategies to protect loved
ones if such a thing would occur.
2013. Primary motivation to buy life insurance has not changed since the original.
Most people are still living pay-check to pay-check. Three primary financial
concerns of Canadians today are; fear of money income when retired (pension), fear
of dying too soon and not leaving money for loved ones (life insurance), fear of
becoming disabled or seriously ill.
1583 London, England. Richard Martin, successful business man, enjoyed spending
time at his country club with his boys. He was quite different from other members of
the club, they had inherited their wealth whereas Martin had earned his money. He
was able to spend so much time at the club because he has given his manager quite a
bit of responsibility. He pays the manager very well and has given him a percentage
of the firm. What would happen if the manager dropped dead the next day? Richard
was concerned about this. It would cost money in sales and to find and train a new
manager. The cost would be 383 pounds, a mill of half a mill today. If the manager
died within 12 months, the club members would pay Richard the money. If not,
Richard had to pay 8% of the 383. 16 members had a piece of 383 pounds. Before
the 12 months, the manager dies. The club decides not to pay, they go to court with
it, making terrible excuses. Richard Martin gets his money. This is the very first
example of a life insurance policy.
Country Club Guys = Insurer
Richard Martin = Insured
Manager = Life Insured Life Insurance Contract
Face Amount = 383 pounds
Premium = 8% of 383
It didn’t work for over a hundred years. Why? In history, people couldn’t see the
difference between life insurance and gambling, this is a reason it didn’t work.
Another reason is the rate of death was not predictable. Third, there was disease
Death rates eventually began to stabilize.
1757 London petition was denied, not enough votes in favour of the policy. 1762 London, the legislation was passed and first life insurance company was
formed. The Old Equitable was created. Richard martins policy expired after one
year, life insurance now did not have an expiry date. Policies would be based on
level premiums. Premiums vary based on age of entry. Younger entry, lower
premiums. Older entry, higher premiums. Life insurance companies around the
world still generally use these 3 philosophies.
Long-term view for companies think 5, 10, 15 years into the future. They offer
things such as warranty, which comforts customers enough to buy products. This is
under the assumption the company will still be around buy the time this “long term
view” comes around.
Sooner you get life insurance, the lower the premium. Death is unavoidable so you
know investing in it is worth while. If the promise to pay is ever not fulfilled, the
reputation of an insurance company would be gone. The best asset a company can
have is the guarantee to keep the promise to pay.
Actuaries tell companies how much to charge for insurance. Things can go wrong
though: economic problems, for example. The calculation for premium depends on
the projected rate of return that the company will make.
Companies consider scenarios such as the plague that would cause the amount of