HISTORY OF LIFE ASSURANCE
|
All individuals have a moral right to a decent
burial, and many individuals through the ages have been concerned that
the burden to pay for their burial may fall on their dependants or close
relatives. This right and associated concern is not a new phenomenon and
can be traced as far back as the Roman Empire. In those days people got
back together and formed burial clubs using the funds they had mutually
contributed to pay for the deceased member's funeral. In later years
Craftsmen formed Guilds, these Guilds operated a common fund into which
all the craftsmen made contributions. The members could access the money
for a variety of events but in particular for funeral grants. |
|
The
introduction of the "Poor Law" in Elizabethan times, together
with the earliest forms of life assurance, led to the demise of the
common funds. Out of the remains of the Guilds a number of mutual
societies were formed although the calculation of premiums and benefits
was extremely crude. One of these early industrial societies was started
in 1705 by John Hartley, a Fleet Street bookseller, who restricted
membership to those aged between 12 and 45. A fixed payment (premium)
was paid to the society regardless of age and the fund was shared at the
end of each year amongst the dependants of those members who had died
during the year. This was changed in 1757 when a guaranteed death
benefit of ₤125 was introduced. |
|
A scientific basis for conducting
life assurance was developed when in 1756 James Dodson, a mathematics
teacher, was refused entry to John Hartley's scheme because at 46 he was
too old. He worked out that, according to the age at entry to the
scheme, each person would pay the appropriate fixed 'level' premium up
to the date of their death at which time a guaranteed sum would be paid
to the dependants. This method was then modified so, if required, the
premium would be paid for a fixed number if years only and the
guaranteed sum would be payable on death if it occurred during that term
or at the end of the term. Although Dodson died before his mutual
society was launched, it did start in 1762 and was quickly successful.
Indeed it was so successful that by 1781 its funds were much larger than
would ever be needed to meet claims. |
|
The society decided to share the
surplus among the policyholders thereby bringing about the first
reversionary bonus, which is such an important factor in today's life
assurance market. After these first ventures many other companies were
formed to transact life assurance. Some collapsed, however, through
unwise or fraudulent management and over the years, starting with the
Assurance Companies Act of 1870, legislation has sought to safeguard
policyholders' rights. |
|
Since then the piece of legislation which had the
most dramatic effect on the way in which life assurance is marketed by
Life Assurance companies and intermediates is the Financial Services Act
(1986). Today the life assurance sector of the insurance market has
developed into a prosperous, varied and often complex activity but one
of its main functions remains the same to provide financial security and
recompose to dependants in the event of death. Until recent times the
term 'assurance' was used when referring to the life sector of
insurance. The terms 'life insurance' and 'life insured' are now
commonly used. |
|