If you’ve ever been curious about how the life insurance industry became the juggernaut it is today—which, as a whole, the Insurance Information Institute values at $1.2 trillion in the United States alone, we compiled a few pivotal periods in the history of all things life insurance, and why it has continued to be an important facet in so many lives through the present day.Who invented life insurance?
Though the concept seems like a feature of contemporary society, life insurance can actually be traced to around 600–100 BCE in ancient Greece and Rome. These sophisticated early societies provided a form of both health and life insurance to some of their citizens. In ancient times in particular, the idea was initiated by a Roman military general, Gaius Marius, who, allegedly, conceptualized a sort of “burial club” among his fellow soldiers in which, should one of them be killed in a military campaign, the survivors would band together to pay for the funeral expenses.
While the idea at the time was initially only applied to soldiers, the concept later spread throughout ancient Rome and was eventually adopted by everyday citizens. These small organizations later expanded this idea to ultimately providing a financial safety net for the family members of those who have fallen in battle. Sound familiar?
Fast forward a few centuries, and the history of life insurance continues in a small coffeehouse in London in the 17th century. Edward Lloyd’s establishment was a popular place for congregating merchants and sailors where the topics of conversation typically included some reference to insurance deals. These conversations were the antecedents that quickly turned into a more formal insurance association, Society of Lloyds (then, it became known as Lloyd’s of London). Underwriters, who were typically rich members of society, assumed risk for the notoriously dangerous marine and trading industries. Later, in 1774, the Society folded their business into the royal exchange, thereby formalizing what was a rather informal business. In the same year, Great Britain established the Life Assurance Act in order to prevent corruption by insurance agents against their clients. Lloyd’s of London now has a global reach and is probably the most well-known life insurance company today.
Life insurance in the American colonies was largely controlled by their churches. In 1759, the Presbyterian Synod of Philadelphia established the Presbyterian Ministers Fund as the very first life insurance company in the New World. Members of the company paid a fixed annual sum, the dividends of which would be collected by the wives and children of those that passed away. However, there was an underlying tension among the clergy regarding the very nature of an industry that essentially manages certain risks, with many priests arguing that life insurance is a form of gambling, which was frowned upon.
Yet the industry lived on. In 1911, an insurance company, AXA Equitable, drafted the first group life insurance policy for the employees of Pantasote Leather Company. This idea was so popular that by 1930, the life insurance industry in the United States alone boasted policies amounting to around $117 billion. This insurance boom and establishment of a slew of companies resulted in a high increase of fraud and deception (the most common cases included charging exorbitant premiums to clients and not being able to actually pay out a claim). The industry at this time in its history was largely unregulated, and some insurers clearly took advantage of having little to no oversight.
The Social Security Act was enacted in 1935, and for the first time ever, offered retired or unemployed Americans a financial safety net. As a result, the life insurance industry lost some of its market share, as the government became more involved. Later, in 1944, the Supreme Court ruled that the industry should be regulated at the federal level. This ruling was short-lived, and by 1945, Congress passed the McCarran-Ferguson Act which declared that the states should control it. This state oversight continues to the present day.
The industry now includes traditional insurers as well as online life insurance, with a much more streamlined application process. But the original tenet of insurance as a financial safety net in case the unthinkable should happen remains a common thread throughout its long history.