1. Today’s Lecture #25 The Insurance Institution Historical Development Types of Private Insurance Organizations Government Insurance Programs Careers in Insurance

2. Historical Development Babylonian Merchants - Robbery Code of Hammurabi - Adoption Annuity Greek Shipping Bottomry - covered vessel Respondentia - covered cargo Premium - risk charge included in interest

3. Historical Development ( Continued) Lombard and Venetian Traders 14th Century Polizza => policy written and folded document Initial source of marine insurance in England was “Lombard Street” British Chamber of Insurance - 1574 Risk-bearers (underwriters) met in coffeehouses Edward Lloyd’s innovation

4. Life Insurance June 18, 1536 Group of Marine Underwriters from the Old Drury Ale House in London Insured the Life of William Gibbons 12 month policy for $2000 15 underwriters split $80 premium William Gibbons died May 29, 1537 Underwriters contested the claim on the basis that coverage was for 12 lunar months

5. You Be the Judge in the William Gibbons Case A)The policy should be void. The underwriters should return the premium to the widow. B)The underwriters should have to pay the claim in full. C)The underwriters should not have to pay the claim at all. D)The claim should be settled with a partial payment since the language was unclear. E)None of the above

6. Fire Insurance September 2, 1666 - London Fire Dr. Nicholas Barbon established the first fire insurer in 1667 - Fire Office

7. Fire Insurance in America Great Fires in America Boston - 1630, 1653 Philadelphia - 1730 Charleston, SC - 1740 New York - 1835 Chicago - 1871 2/3s of city 68 of 202 insurers went bankrupt San Francisco - 1906

8. What Caused the 1871 Chicago Fire? A)Mrs. O’Leary’s cow kicked over a lantern B)Mike O’Leary was playing with matches C)A blacksmith’s forge overheated D)A drunk dropped a match in the O’Leary barn E)None of the above

9. Fire Insurance in America (Continued) Union Fire Company of Philadelphia - 1730 Formed by Ben Franklin Purpose was fighting fires Friendly Society of Charleston - 1735 One of first fire insurers Bankrupt in 1740 Philadelphia Contributorship for the Insurance of Houses from Loss by Fire - 1752 First mutual Underwriting policy - no trees near house

10. Structure of the Insurance Industry Monoline policies Multiple-line coverage Mergers Full service financial organizations

11. Types of Private Insurance Organizations Stock Mutual Reciprocal Lloyd’s of London Lloyds Associations Insurance Exchanges Banks

12. Lloyd’s of London Developed from underwriters first operating out of Edward Lloyd’s coffeehouse Association of individuals who write insurance for their own account Underwriting members (names) accept risk and have unlimited liability Names are formed into syndicates that accept risk through brokers

13. Lloyd’s of London Growth in membership 1953 3,400 1978 10,000 198934,000 199417,500 What happened to all those members from 1989? Losses in 1988-1992 of $14 billion 1,500 members went bankrupt Now accepting corporate capital with limited liability

14. Active Members in Lloyd’s 1995-2006 http://www.lloyds.com/Lloyds_Market/Capacity/Members.htm

15. Lessons from Lloyd’s of London Insurance is a very risky business You must know what risks you are accepting A long history is no guarantee for the future If you or your company does not understand a risk, don’t accept it

16. Government Insurance Programs State Unemployment insurance Guaranty funds Workers’ compensation Medical malpractice Joint Underwriting Associations Beach and windstorm insurance plans Maryland auto plan

17. Government Insurance Programs (Continued) Federal Social Security Federal Deposit Insurance Corporation National Flood Insurance Program Pension Benefit Guaranty Corporation

18. Careers in Insurance Specialized Actuary Underwriter Claims adjuster Marketing Investment Legal General Management Accounting Human resources Computer systems