Think of insurance as a safety net. It’s an essential financial product that protects people and companies from unexpected losses in emergencies.
It is a contract between an insurance company and a person or business, where the insurance provider agrees to pay the policyholder for a specified loss in exchange for a premium payment. Insurance has been around for centuries, with the first recorded instance of insurance dating back to ancient Babylon. The history of insurance is a fascinating one, with the concept evolving over time to meet the changing needs of society.
The Origins of Insurance
It all started in ancient Babylon, where merchants would pool their resources together to cover losses that happened during sea voyages. Insurance also made its way to ancient Greece and Rome, where it was used to protect against risks related to shipping and trade. In the Middle Ages, insurance was mainly used to protect against fires and shipwrecks.
Fast forward to the 14th century and the Italian city of Genoa had the first insurance company, called the "Office of Public Insurance." This idea of sharing risk and pooling resources is still a big part of how insurance works today.
When looking specifically at the history of insurance in America, the first insurance company in the US was founded by Benjamin Franklin in 1752. This company was called the Philadelphia Contributionship.
It was created to insure homes against fire, which was a big risk back in the early days of the colonies. The industrial revolution in the 19th century also played a role in the growth of the insurance industry.
With more factories and machinery, there was a higher demand for liability insurance to protect businesses against industrial accidents. Nowadays, insurance covers a wide range of risks, including car insurance, health insurance, and life insurance.
The Purpose of Insurance
So, why was insurance created in the first place? Insurance was created as a way to protect individuals and businesses from financial loss—in a fair way.
With an insurance policy, you’re essentially transferring the risk of losing something (e.g. your house burns down, your car gets damaged in an accident, etc.) to an insurance company. In return for transferring this risk, the insurance company charges you a monthly payment (a premium).
This helps to ensure that individuals and businesses are protected against the financial consequences of unexpected events, such as accidents, natural disasters, and illnesses.
Without the invention of insurance, people and companies would have to deal with the burden of covering financial losses in any emergency.
The Types of Insurance
There are many different types of insurance available to protect against a wide range of risks. Some common types of insurance include:
- Auto insurance: Auto insurance protects individuals against financial losses resulting from car accidents. It covers the cost of repairing or replacing a damaged vehicle and medical expenses for injuries sustained in an accident.
- Health insurance: Health insurance helps to cover the cost of medical treatment, including hospital stays, doctor visits, and prescription medications. It can also provide financial protection in the event of a serious illness or injury.
- Life Insurance: This type of insurance provides a person the ability to cover any financial burden upon their death. It pays out a specified amount of money to the beneficiary upon the policyholder's death.
- Homeowners insurance: Homeowners insurance protects homeowners against financial losses resulting from damage to their home or personal property. This covers the cost of repairing or rebuilding a damaged home and replacing lost or damaged personal property
There’s also renter’s insurance, pet insurance, boat insurance, and other types that you can purchase to protect yourself from financial loss.
The History Of Car insurance
The first recorded instance of car insurance in the US was in 1897, when a New Hampshire-based insurance company called Travelers started offering automobile insurance policies. However, it wasn't until cars became more widespread that car insurance really took off.
With the increase in cars on the road came an increase in accidents and injuries. Car insurance was introduced as a way for people to protect themselves financially in case of a car accident. It's a good thing too, because nobody wants to be stuck paying for car repairs or medical bills out of pocket.
why is it important to have car insurance?
Nowadays, car insurance is a must-have in most states. It's a key part of personal financial planning and helps to protect us from the financial consequences of car accidents.
Why is it important to have car insurance?
Without it, you'd have to pay for car repairs and medical expenses out of pocket, which could be a huge burden. Plus, having car insurance gives you peace of mind and financial security in case of an accident.
There’s at least a 1% chance at any given time that you may find yourself in an accident. Depending on driving conditions, the vehicle you drive, and your driving habits the chances could increase or decrease (by a little or by a lot). So to make driving less stressful and to cover your bases, this is why car insurance is a mandatory financial product.
There will always be an inherent risk to driving on the road.
But there is a problem with car insurance as it exists today—this industry is broken.
Uncovering The Biases In Insurance
Insurance is a financial product that is meant to provide protection and security for individuals and businesses. However, like any system, insurance is not immune to biases and discrimination.
These biases can manifest in various ways, including discriminatory pricing, denial of coverage, and lack of access to insurance for certain groups of people.
One form of bias in insurance is discriminatory pricing, in which certain groups of people are charged higher premiums for the same coverage. The main contributing factor for this today is the use of credit score when rating customers.
For example, a study conducted in 2019 found that car insurance premiums were consistently higher for drivers in predominantly minority neighborhoods, even when controlling for other factors such as driving record and coverage levels.
This type of bias can make it difficult for certain groups of people to afford insurance, leading to a lack of access and protection. It is important for insurance companies to be aware of and address these biases in order to ensure that their products are accessible and fair to all.
Which is why LOOP is leading the charge in changing how car insurance is done. Instead of rating a customer’s potential risk based on the their credit score, we look at how they drive and where they drive instead.
Interested in seeing how much you could save when your credit score isn’t considering in your monthly price? Get a quote with us here.