History of Insurance | Canada

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Taking risks – developing Western Society

The history of insurance is the story of Western society’s development. As agriculture gave way to industrial growth it became clear that expansion depended on capital – money that would be risked for the profit it offered. For those risk-takers, insurance provided a guarantee that all would not be lost through error, bad judgment or bad luck.

The early merchants in Italy and England who financed the voyages of ships to gather silks and spices knew well the terrible dangers their ships would face. Pirates, poor navigation and storms all threatened their investment. But an early form of marine insurance was created in Italy to counteract these dangers. In 1063, merchants in the trading port of Amalfi introduced what became known as the Amalfi Sea Code. Under the Code any merchant whose ship was lost was reimbursed from a pool of money all members contributed to.

The Code held sway throughout the Mediterranean for over 500 years. Then, as the trading and military might of Great Britain grew, so did the need for more sophisticated insurance protection. In 1574, Elizabeth I granted permission to Richard Candaler to establish Chamber of Insurance to register all insurance transactions in London. By 1688 Edward Lloyd’s famous coffee shop on Tower Street was the informal site of a thriving marine insurance centre where merchants, bankers, seafarers and underwriters came together to do business. All these activities meant that businessmen and merchants were free to broaden their scope, even to finance several ships, secure in the knowledge that one tragedy at sea would not wipe them out.

 

Deadly scourge of fire – triggering insurance’s early growth

While marine insurance played a pioneering role, what triggered insurance’s early growth was the deadly scourge of fire, and one disaster in particular. That event was the Great Fire of London in 1666, which began, ironically in the house of the King’s baker. Eventually it swept through four-fifths of the largely wooden city, destroying more than 13,000 homes and 100 churches, including St. Paul’s Cathedral.

 

More accurate predictions – establishing insurance rates

From the ashes a new brick and stone city began to rise. As it did, so did demands for better protection, for insurance against such calamity. A year after the Great Fire, a local dentist, Dr. Nicholas Barbon, operating under a charter granted by Charles II, opened an office to transact fire insurance on selected dwellings in London. More accurate predictions of losses began to evolve, and with these, the beginnings of precise insurance rates. In those days, insurance premiums were calculated on the assumption that 1 house in 200 would burn down every 15 years. One early fire insurance office in 1680 set its premiums at 2.5% of the annual rent for a brick house and 5% for a wooden one.

Insurance’s foundations were sound. The idea took hold, and as the need for protection grew, insurance became more versatile. By 1706, the Sun Fire Office in London was offering coverage on contents as well as the dwellings themselves. Insurance companies opened for business in Scotland by 1720, in Germany by 1750, in the U.S. by 1752, and in Canada by 1804. Even in those early days, insurers quietly began to play an important role in public safety. By allowing discounts for soundly-built and suitably-protected property and by penalizing dangerous ones, insurance companies slowly raised the awareness of fire’s dangers and encouraged the construction of safer buildings.

 

 

 

19th Century Canada – insurance comes to Canada

 

In the early 1800s, Canada’s storehouse of natural riches was largely untapped, but cities were growing steadily in size, and trade with Europe and the United States was expanding. The need for insurance protection was obvious. The Phoenix Assurance Company opened an office in Montreal in 1804. Five years later a group of Halifax businessmen, priding themselves on local knowledge and a concern for the citizens of Nova Scotia, formed the Halifax Fire Insurance Association. It would become the Halifax Insurance Company in 1819, the same year that Quebec’s first domestic insurer, the Quebec Fire Insurance Company, was formed.

 

Some years later, in 1836, came another development in the expanding versatility of insurance. The colony of Upper Canada authorized the creation of mutual insurance companies – owned by the holders of the company’s policies. Three years later the Gore District Mutual Fire Insurance Company was formed, and today is Canada’s oldest continuously operating fire insurer.

 

At that time, fire remained the major peril in an era of mostly wood construction. The old city of Quebec was particularly hard hit. Much of the city was destroyed in 1815, then twice again in 1845, with a total of more than 2,000 buildings lost and 60 residents killed. Such was the ever-present danger of fire there that many insurance companies owned and operated their own fire brigades until that responsibility was passed over to local government in 1866.

 

 

Insurance always needed – turn of century snapshot

 

It is interesting to note that in the 1905 Report of the Superintendent of Insurance, 40 companies offered fire insurance in Canada. Of these, 17 were British, 13 Canadian and 10 American. Total premium income for that year for all companies combined amounted to $14.3 million. Losses paid were $6 million – a far cry from the multi-million-dollar losses that the industry now routinely pays. Today, as a leading member of Canada’s fast-moving financial services industry, this country’s property and casualty insurance industry can look back with pride on a long and colourful history, and ahead at a future of enormous promise. Insurance will always be needed.

Provided by Insurance Bureau of Canada

 

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