The concept of insurance and risk management can be traced back to ancient civilizations. Historians suggest that similar methods of transferring and distributing risk were already in practice by Babylonian and Chinese traders as early as the 3rd and 2nd millennia BC.
Chinese merchants would distribute their wares across several vessels to reduce the risk of losing all of their goods in case one of the ships capsized while navigating dangerous river rapids. Meanwhile, the Babylonians created a system that was later adopted by early Mediterranean sailing merchants and recorded in the Code of Hammurabi. In this system, a merchant who took out a loan to fund their shipment would pay a premium to the lender as a guarantee that the loan would be cancelled if the shipment was lost or stolen.
In the 8th century BC, the citizens of Rhodes, Greece, introduced the concept of the “General average,” which allowed traders and merchants to collectively insure their goods if shipped together. The collected insurance payments would be used to compensate merchants who lost their goods during shipment, due to natural causes or sinkage.
In the 14th century, separate insurance agreements were invented in Genoa, using insurance pools with landed estates as collateral. These policies were not linked to loans or other contracts and the earliest recorded insurance contract from Genoa dates back to 1347. Over the following century, maritime insurance saw significant advancements, with premiums becoming more sophisticated and reflecting the risks involved. This new form of insurance contract facilitated the separation of insurance from investment and was beneficial for maritime trade and the establishment of insurance companies.