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Methods for transferring or distributing risk were practiced by [[China|Chinese]] and [[Trade guilds of South India|Indian]] traders as long ago as the [[3rd millennium BC|3rd]] and [[2nd millennium BC|2nd]] [[millennium|millennia]] BC, respectively.<ref>{{cite book|title=Indian Life and Health Insurance Industry: A Marketing Approach|page=2|publisher=Springer Science & Business Media|author=Novi Dewan}}</ref><ref>See, e.g., Vaughan, E. J., 1997, ''Risk Management'', New York: Wiley.</ref> Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel capsizing.
[[Code of Hammurabi#Laws|''Codex Hammurabi'' Law 238]] (c. 1755–1750 BC) stipulated that a [[sea captain]], [[Technical management|ship-manager]], or [[Chartering (shipping)|ship charterer]] that saved a ship from [[Shipwreck|total loss]] was [[Pro rata|only required to pay one-half the value of the ship]] to the [[ship-owner]].<ref name="Sommer 1903 p. 86">{{cite journal|translator-last=Sommer|translator-first=Otto|author=Hammurabi|author-link=Hammurabi|title=Code of Hammurabi, King of Babylon|year=1903|journal=Records of the Past|place=[[Washington, D.C.|Washington, DC]]|publisher=[[Records of the Past Exploration Society]]|volume=2|issue=3|page=[https://archive.org/details/cu31924060109703/page/n27/mode/2up 86]|access-date=20 June
The law of general average is the fundamental [[principle]] that underlies all insurance.<ref name="Prudential pp. 5–6" /> In 1816, an archeological excavation in [[Minya, Egypt]] produced a [[Nerva–Antonine dynasty]]-era [[Clay tablet|tablet]] from the ruins of the [[Antinous#Deification and the cult of Antinous|Temple of Antinous]] in [[Antinoöpolis]], [[Roman Egypt|Aegyptus]]. The tablet [[Articles of association|prescribed the rules]] and [[Benefit society|membership dues]] of a [[burial society]] [[Collegium (ancient Rome)|collegium]] established in [[Lanuvium]], [[Roman Italy|Italia]] in approximately 133 AD during the reign of [[Hadrian]] (117–138) of the [[Roman Empire]].<ref name="Prudential pp. 5–6" /> In 1851 AD, future [[Supreme Court of the United States|U.S. Supreme Court]] [[Associate Justice of the Supreme Court of the United States|Associate Justice]] [[Joseph P. Bradley]] (1870–1892 AD), once employed as an [[actuary]] for the [[Mutual Benefit Life Insurance Company]], submitted an article to the ''[[Institute of Actuaries|Journal of the Institute of Actuaries]]''. His article detailed an historical account of a [[Severan dynasty]]-era [[life table]] compiled by the [[Roman law|Roman jurist]] [[Ulpian]] in approximately 220 AD that was also included in the ''Digesta''.<ref>{{cite book|year=1915|title=The Documentary History of Insurance, 1000 BC–1875 AD|publisher=[[Prudential Financial|Prudential Press]]|place=[[Newark, New Jersey|Newark, NJ]]|pages=[https://archive.org/details/cu31924030231736/page/n9/mode/2up 6–7]|url=https://archive.org/details/cu31924030231736/mode/2up|access-date=
Concepts of insurance has been also found in 3rd century BC Hindu scriptures such as [[Dharmasastra]], [[Arthashastra]] and [[Manusmriti]].<ref>{{cite book|title=The Life Insurance Industry in India: Current State and Efficiency|page=2|author=Tapas Kumar Parida, Debashis Acharya|publisher=Springer|year=2016|isbn=9789811022333}}</ref> The ancient Greeks had marine loans. Money was advanced on a ship or cargo, to be repaid with large interest if the voyage prospers. However, the money would not be repaid at all if the ship were lost, thus making the rate of interest high enough to pay for not only for the use of the capital but also for the risk of losing it (fully described by [[Demosthenes]]). Loans of this character have ever since been common in maritime lands under the name of [[bottomry]] and respondentia bonds.<ref name=EB1911>{{cite EB1911 |wstitle=Insurance |volume=14 |pages=657–658 |first1=Charlton |last1=Lewis |first2=Thomas |last2=Ingram}}</ref>
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Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in [[Genoa]] in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347. In the next century, maritime insurance developed widely, and premiums were varied with risks.<ref>J. Franklin, ''The Science of Conjecture: Evidence and Probability Before Pascal'' (Baltimore: Johns Hopkins University Press, 2001), 274-277.</ref> These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in [[marine insurance]].
The earliest known policy of life insurance was made in the [[Royal Exchange, London]], on
===Modern methods===
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# A large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies cover individual members of large classes, allowing insurers to benefit from the [[law of large numbers]] in which predicted losses are similar to the actual losses. Exceptions include [[Lloyd's of London]], which is famous for insuring the life or health of actors, sports figures, and other famous individuals. However, all exposures will have distinct differences, which may lead to different premium rates.
# Definite loss: This type of loss takes place at a known time and place from a known cause. The classic example involves the death of an insured person on a life insurance policy. [[Fire]], [[Traffic collision|automobile accidents]], and worker injuries
# Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure because it results from an event for which there is only the opportunity for cost. Events that contain speculative elements such as ordinary business risks or even purchasing a lottery ticket are generally not considered insurable.
# Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses, these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.
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|archive-url = https://web.archive.org/web/20000919231814/http://wrdsenet.wharton.upenn.edu/fic/wfic/papers/95/9513.pdf
|url-status = dead|archive-date = 19 September 2000
|issn=0021-9398 }} ([http://fic.wharton.upenn.edu/fic/papers/95/9513.pdf online draft] {{Webarchive|url=https://web.archive.org/web/20100622075631/http://fic.wharton.upenn.edu/fic/papers/95/9513.pdf |date=22 June 2010 }})</ref>
==Types ==
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* [[Pollution insurance]] usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources. Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
* Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, [[Warranty|warranties]], [[guarantee]]s, care plans and even mobile phone insurance. Such insurance is normally limited in the scope of problems that are covered by the policy.
* Tax insurance is increasingly being used in corporate transactions to protect taxpayers in the event that a tax position it has taken is challenged by the IRS or a state, local, or foreign taxing authority<ref>{{cite journal|last1=Blitz|first1=Gary|last2=Schoenberg|first2=Daniel|title=Private REITs: Facilitating a Cleaner Exit with Tax Insurance|url=https://www.transactionadvisors.com/insights/private-reits-facilitating-cleaner-exit-tax-insurance|journal=Transaction Advisors|issn=2329-9134|access-date=29 April 2015|archive-date=23 October 2018|archive-url=https://web.archive.org/web/20181023135953/https://www.transactionadvisors.com/insights/private-reits-facilitating-cleaner-exit-tax-insurance|url-status=dead}}</ref>
* [[Title insurance]] provides a guarantee that title to [[real property]] is vested in the purchaser or [[mortgage law|mortgagee]], free and clear of [[lien]]s or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a [[real estate]] transaction.
* [[Travel insurance]] is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, and personal liabilities.
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In 2017, within the framework of the joint project of the [[Central Bank of Russia|Bank of Russia]] and [[Yandex]], a special [[check mark]] (a green circle with a tick and 'Реестр ЦБ РФ' (Unified state register of insurance entities) text box) appeared in the search for Yandex system, informing the consumer that the company's financial services are offered on the marked website, which has the status of an insurance company, a broker or a mutual insurance association.<ref>{{Cite web|url=http://www.cbr.ru/eng/press/event/?id=1568|title=Insurers' websites receive first marks {{!}} Банк России|website=www.cbr.ru|access-date=21 May 2018}}</ref>
==Insurance practices and controversies==
===Does not reduce the risk===
Insurance is just a risk transfer mechanism wherein the financial burden which may arise due to some fortuitous event is transferred to a bigger entity (i.e., an insurance company) by way of paying premiums. This only reduces the financial burden and not the actual chances of happening of an event. Insurance is a risk for both the insurance company and the insured. The insurance company understands the risk involved and will perform a [[risk assessment]] when writing the policy.
As a result, the premiums may go up if they determine that the policyholder will file a claim. However, premiums might reduce if the policyholder commits to a risk management program as recommended by the insurer.<ref>{{Cite web|last=Libatique|first=Roxanne|title=Senior broker on the importance of reducing clients' risk exposure|url=https://www.insurancebusinessmag.com/au/features/broker-profiles/senior-broker-on-the-importance-of-reducing-clients-risk-exposure-218357.aspx|access-date=2020-11-05|website=www.insurancebusinessmag.com|language=en}}</ref> It is therefore important that insurers view risk management as a joint initiative between policyholder and insurer since a robust risk management plan minimizes the possibility of a large claim for the insurer while stabilizing or reducing premiums for the policyholder. [[University of Tennessee]] research published in 2014 found that all company staff in the businesses they surveyed recognised the importance of insurance but largely they were too distant within their organization from the provision or cost of insurance to be able to relate to company insurance needs.<ref>SpotSee, [https://cdn2.hubspot.net/hubfs/2072862/SpotSee%202017/3.2%20Resource%20Library/Assessing%20the%20Total%20Cost%20of%20Damage_HR.pdf?t=1535384103237 Assessing the Total Cost of Supply Chain Damage], ''www.spotsee.io'', revised in January 2024, accessed on 25 November 2024</ref>
If a person is financially stable and plans for life's unexpected events, they may be able to go without insurance. However, they must have enough to cover a total and complete loss of employment and of their possessions. Some states will accept a surety bond, a government bond, or even making a cash deposit with the state.{{citation needed|date=April 2017}}
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=== Insurance on demand ===
Insurance on demand (also IoD) is an insurance service that provides clients with insurance protection when they need, i.e. only episodic rather than on [[24/7 service|24/7]] basis as typically provided by traditional insurers (e.g. clients can purchase an insurance for one single flight rather than a longer-lasting travel insurance plan).{{fact|date=September 2024}}
===Insurance industry and rent-seeking===
Certain insurance products and practices have been described as [[rent-seeking]] by critics.{{Citation needed|date=September 2008}} That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events.{{fact|date=September 2024}}
===Religious concerns===
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}}</ref>
Some Christians believe insurance represents a lack of faith.<ref>{{Cite web|last=|first=|date=|title=Insurance: A Christian Perspective - Faith in Business|url=https://www.faithinbusiness.org/Articles/590904/Insurance_A_Christian.aspx|archive-url=https://web.archive.org/web/20210301160649/https://faithinbusiness.org/Articles/590904/Insurance_A_Christian.aspx|archive-date=1 March 2021|access-date=5 January 2021|website=www.faith-in-business.org|url-status=dead}}</ref><ref>{{Cite web|url=https://www.crosswalk.com/family/finances/planning/is-your-insurance-a-lack-of-faith-in-god.html|title=Should Christians Buy Insurance?|website=Crosswalk.com|access-date=25 December 2018}}</ref>
|author = Donald B. Kraybill|page = 277|isbn = 978-0-8018-3682-4|year = 1989|url-access = registration|url = https://archive.org/details/riddleofamishcu000kray
|publisher = Baltimore : Johns Hopkins University Press}}</ref><ref>{{cite web| url = http://www.gameo.org/encyclopedia/contents/I583ME.htm| title = Global Anabaptist Mennonite Encyclopedia Online, Insurance| access-date = 18 January 2010 }}</ref>
==See also==
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* [https://www.ncsl.org/research/health/congressional-research-service-reports-on-health Congressional Research Service (CRS) Reports regarding the US Insurance industry]
* [https://www.ferma.eu/ Federation of European Risk Management Associations]
* [http://www.ibc.ca/ Insurance Bureau of Canada]
* [https://www.iii.org/ Insurance Information Institute]
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