The concept of Marine insurance is something that has been developing at a fast rate of late. (Marine Insurance: Barlow, Lyde and Gilbert) What exactly is insurance and how long has the concept been recognized? Insurance can be defined as a form of provision of a safety net for the distribution of risks. This is generally made in the form of a financial provision that is meant to protect against losses that may occur due to certain unavoidable reasons. Insurance works like this: a person who wishes to insure an object or possession or belonging of his will pay a certain amount of money that has already been fixed by the insurance agent in order to offer the security of the money to distribute the risks when the insurer happens, by misfortune, to lose his possession or damage it because of an unavoidable reason. The insurer, by the very fact that he has accepted risks, agrees that he will pay the amount of the insurance protection that would cover all the various losses that would have occurred.
Insurance can also be described as a form of securing the promise of indemnity by the payment of a specified sum of money as well as by fulfilling other obligation as required by the insurance company. The principle of insuring a person's valuable possession has been in existence from the time of the Romans, when a sum of money would be paid for the burial of a dead soldier, and so on. To a certain extent, this form of insurance actually resembles the welfare societies of today's world wherein a sum of money is paid to a person when he has no other means of income, when he happens to also deserve it. When the Romans performed burial rites for the dead soldiers, they were in fact accepting a sum of money from them when they were still very much alive, in return for the service. This can be seen for the act of insurance it really was. Records exist of the sums of money that were paid by Demosthenes for marine loans as insurance to the ancient Greeks; records exist too of the idea of insurance among the ancient Chinese people of 2,500 years ago. (History of Insurance)
Though recorded instances of insurance in the ancient ages are present, there are no records of insurance through the ages, and even if there was some form of insurance in some countries in some centuries, this insurance was never of large proportions; they were all paltry sums of money paid for insurance of small possessions. The Insurance of today is a large proposition, wherein huge amounts of money are paid by the insurer to the company in order to minimize his risks when he is in possession of something of great value. Insurance is now divided into four categories: 1.Marine insurance, 2. Fire insurance, 3. Life insurance, and 4. Casualty insurance. Among these, it is marine insurance that is the oldest form of insurance, as it dates back to more than seven centuries ago. Marine insurance seems to have been utilized as a form of safety in the Mediterranean in those days. Records of fire insurance have been dated as far back as the Great London Fire of 1666, and it was at this time that it was established. (History of Insurance)
Life insurance was not discovered or established until the year 1760 when an insurance company was formed for this purpose. This company, surprisingly, was based on certain principles that insurance companies still follow today. The last form of insurance, namely, casualty insurance, was formed in the nineteenth century, when the first steam railway system was established. A lot of accidents were caused due to this new mode of transport, and this gave rise to the need fro insurance. This insurance can also be referred to as accident insurance. Whatever may be the form of insurance; they were all based on the basic theory of probabilities. This is the theory that states that all events, though they may not be fixed, will occur with approximate regularity. These events, because of their regularity of occurrence, lead to the fact that a law can be based on them. In other words, the law can be based on the conclusions that can be drawn from the very fact that these events will keep happening with regularity over a fixed period of time.
It was the famous 'Game of Points' that led to the theory of probabilities being discovered. This was the incident that led to it: two noblemen were engaged in the Game of Points. When the two people had to stop their game before it was concluded, and with both noblemen in possession of their own stakes and absolutely unwilling to divide them, the famous Frenchman, Pascal was called upon to divide the stakes that was of the amount of $64, each of the two noblemen having paid $32 each. It would not be until one of the players was able to score three points that he would be able to stake the claim to the stakes, and one of the players had a credit of two points in his account, and the other had one. When Pascal was called upon to give them a solution to the problem, the Frenchman decided to offer them a solution based on probabilities and possibilities. This is what he said: if it was that one of the players had played another hand at the stakes, one of two things would have happened. Either the player who had two points to his credit would have gained another point and therefore be in possession of a total number of three points, or the player who had one point would have been able to add another point to his credit, and would have therefore had the same number of pints as the other player. (History of Insurance)
If this had happened, each player would have been able to retain his own individual stakes. Since the odds of either of the two noblemen winning were equal, and the person with two points would not lose his stakes if he happened to play another round, the other $32 should be divided into two parts. Thus the player with one point to his credit would retain the sum of $16, and the other player would also receive $16. If this was not acceptable by the two players, then the whole stake must be divided into proportions of 48 and 16. This solution offered by Pascal was a great boon to gamblers of the time who felt that this was the best method to decide on the outcome for a game that could not be played until its conclusion. The theory of probabilities had come into existence, and this became the basis for the entire business of insurance. However, it must be emphasized that though insurance has been compared to the game of gambling, the innate principles of insurance are entirely different. While on one hand gambling is based on pure chances, and on completely unknown factors, insurance is based on all the different dimensions of the problem being considered. (History of Insurance)
Marine insurance has been acknowledged as one of the oldest forms of insurance in the world. It is a system that is completely based on indemnity. The primary and also sole purpose of marine insurance is to repair or make whole the loss that has been suffered by the person who has insured. This form of insurance was practiced in the Mediterranean, and the Rhodians and the Hanseatic League were among the first few people to insure their marine belongings. In the UK, however, marine insurance started as a business in London in the famous coffee house belonging to Edward Lloyd, in London. To this day, the name of Lloyds is generally associated with insurance and marine insurance in particular. What happened at the coffee house was this. The Edward Lloyd was a meeting place for marine merchants. These people would gather there to discuss different aspects of their voyages. (Marine Insurance)
It soon became an established custom for one merchant to take up a portion of the risks of the other merchant when he was about to set forth on his sea voyage. For example, a merchant who was setting out to the West Indies with a cargo costing 10,000 pounds, would request his friends to put up a sum of money, at a premium, to take up a portion of the risk, like being lost at sea, for example, that the ship was about to undertake. The amounts for this undertaking, at the outset, were very small, maybe about 100 pounds, never more than that. The person putting up his money would sign a document stating that this was the sum of money that he was paying for the risk that he was undertaking. This was, interestingly, how the term 'underwriter' came into existence. The person signing the…