The Evolution and Realignment of Insurance: From Risk Sharing to Aligned Functioning
Editor’s Note
This essay traces the full history and evolution of insurance—from its origins in ancient trade to the modern systems that shape everyday life. Written to offer both historical understanding and a forward-looking solution.
If you’re primarily interested in the art and reform sections, you can scroll ahead to:
• Where I Live There Is Mold… — a poetic reflection on the lived experience behind the system.
• Proposal for Aligned Functioning (The Insurance Equity Ledger) — a practical framework for restoring balance, equity, and purpose.
The History and Evolution of Insurance: From Ancient Risk Sharing to the Modern Global System
Insurance, in its many forms, has always emerged from a simple human need: protection from uncertainty. Whether through shared community funds or sophisticated actuarial models, insurance reflects society’s ongoing attempt to manage risk collectively. From the caravans of ancient merchants to today’s global markets and digital underwriting, the history of insurance mirrors the evolution of civilization itself.
Origins: Early Risk-Sharing and the Birth of Insurance Concepts
The earliest roots of insurance can be traced to the ancient world. Around the third and second millennia BCE, Babylonian and Chinese traders developed early methods to mitigate loss during risky voyages. In Babylon, the Code of Hammurabi (circa 1750 BCE) allowed merchants to pay an additional fee to lenders so their loans would be forgiven if goods were lost at sea—a contractual form of risk transfer resembling marine insurance. Similarly, Chinese merchants divided their goods among multiple boats to minimize losses if one capsized.
In ancient Greece and Rome, mutual aid societies and burial clubs pooled resources to cover funeral costs or support families of deceased members. These early associations formed the moral and structural foundation of modern life insurance: collective responsibility for individual tragedy.
The essential need at this stage was survival through cooperation—a way for small groups to manage large risks. While informal, these systems proved the viability of shared risk as a social tool.
Medieval and Early Modern Developments: From Trade to Contracts
During the Middle Ages, insurance practices became more formalized, especially in maritime trade. Italian city-states such as Genoa, Venice, and Florence developed written marine insurance contracts by the 1300s, protecting merchants against shipwreck, piracy, or cargo loss. These contracts are considered the first legally enforceable insurance policies in Western history.
By the late 1600s, London had become the world’s maritime hub. Lloyd’s Coffee House, a meeting place for shipowners and merchants, evolved into Lloyd’s of London, which remains one of the leading global insurance markets today. Around the same time, European guilds functioned as early insurers—offering sickness, accident, and funeral support to craftsmen.
These developments reflected a shift from informal mutual aid to formal risk contracts, backed by written law and financial institutions. The need for dependable trade protection in expanding global commerce drove innovation in both underwriting and claims assessment.
Modern Insurance Emerges: Fire, Life, and Actuarial Science
A pivotal moment came after the Great Fire of London in 1666, which destroyed over 13,000 homes. The disaster highlighted the need for structured protection against urban catastrophe and led to the founding of The Fire Office (1680), the first successful fire insurance company.
The 18th century saw life insurance evolve into a science. The Amicable Society for a Perpetual Assurance Office (founded in 1706) was the first life insurance company to offer death benefits funded by member contributions. Actuarial science—statistical analysis of life expectancy—emerged soon after, allowing insurers to calculate premiums based on measurable risk.
In the American colonies, Benjamin Franklin established the Philadelphia Contributionship in 1752, which insured homes against fire and inspected them for safety, introducing an early form of risk prevention. These milestones solidified insurance as both a moral enterprise and a mathematical one, linking personal security to economic stability.
The Industrial Era: Social Insurance and Modern Expansion
The Industrial Revolution transformed the nature of work and risk. Factory accidents, crowded cities, and poor sanitation spurred the development of new insurance forms, including workers’ compensation and employer liability insurance. In 19th-century Germany, Chancellor Otto von Bismarck introduced the world’s first social insurance programs—covering sickness, accident, and old age—which laid the groundwork for modern welfare systems across Europe.
In the United States, insurance companies proliferated during the 19th and 20th centuries, offering products for life, property, and accident coverage. The automobile revolution in the early 1900s brought auto insurance, while health insurance gained momentum during World War II, when wage freezes encouraged employers to offer healthcare benefits to attract workers.
By the late 20th century, insurance had expanded into nearly every sector—commercial, environmental, and personal. The rise of reinsurance allowed global sharing of catastrophic risk, ensuring stability in the face of major natural or financial disasters.
The Digital and Global Age: Data, Customization, and Climate
Today, insurance operates within a highly interconnected global economy. In the United States, the system combines private enterprise with public safety nets like Medicare, Social Security Disability, and unemployment insurance. Policies are largely regulated at the state level, ensuring consumer protection and solvency oversight.
Modern technologies—artificial intelligence, satellite imaging, and big data—allow insurers to calculate risk in real time. Usage-based auto insurance, wearable health trackers, and AI-powered underwriting now personalize coverage for individuals. Globally, microinsurance programs offer low-cost protection to farmers and small entrepreneurs in developing nations.
Climate change is also reshaping the industry. New forms of parametric insurance pay out automatically when specific climate events occur, such as hurricanes exceeding a certain wind speed or rainfall thresholds being met. This evolution underscores the enduring purpose of insurance: adapting to humanity’s most pressing vulnerabilities.
Modern Insurance in the United States: Current Forms and Needs
Insurance today addresses both individual and collective needs.
Individual coverage includes health, life, auto, homeowners, renters, flood, travel, disability, long-term care, and pet insurance.
Business insurance covers general liability, commercial property, workers’ compensation, business interruption, cyber liability, professional liability (E&O), and key person policies.
Specialized forms—like crop, marine, aviation, political risk, and reinsurance—serve sectors vital to the global economy. Emerging needs include cybersecurity, gig worker protection, climate risk, and identity theft insurance, all reflecting modern society’s digital and environmental exposures.
Insurance Mandates and Market Mechanisms in the United States
Insurance policy in the United States reflects a central tension: the balance between individual freedom and collective responsibility. Some forms are mandated by law to protect public welfare; others are left to market enforcement and private contracts.
Health insurance demonstrates this complexity most clearly. About 92% of Americans had coverage in 2023, but 26 million remained uninsured. Five states—California, Massachusetts, New Jersey, Rhode Island, and Vermont—and Washington, D.C. still enforce health insurance mandates. Elsewhere, coverage is voluntary or tied to employers.
Auto insurance, by contrast, is nearly universal. Every U.S. state except New Hampshire requires drivers to carry minimum liability insurance or demonstrate financial responsibility. Virginia’s alternative $500 fee was eliminated in 2024, making coverage effectively mandatory nationwide.
Homeowners and renters insurance differ: neither is required by law, but both are enforced through private contracts. Mortgage lenders require homeowners insurance; landlords often require renters policies. These mechanisms protect property interests while leaving individuals to bear the cost of compliance.
This spectrum of mandates reveals how U.S. insurance balances freedom with shared accountability—public mandates where risk affects others, and private enforcement where risk is personal.
Comparative Examples of Insurance Costs
Example 1: Individual Renter
- Health insurance: $456/month
- Auto insurance: $213/month
- Renters insurance: $15/month
- Pet insurance: $62/month
Total: $746/month
Example 2: Family of Four (Homeowners)
- Family health plan: $1,437/month
- Auto insurance (two cars): $426/month
- Homeowners insurance: $150/month
- Pet insurance: $62/month
Total: $2,075/month
These examples show how household structure and property ownership affect financial load. Even the single renter pays nearly $750/month for coverage; the family spends almost three times as much.
The Landscape of Claim Denials
In 2023, health insurers denied about 19% of all in-network claims and 37% of out-of-network claims. Hospitals spend billions each year managing appeals and resubmissions, while individuals often give up due to the complexity of the process.
Life insurance claims are denied or delayed in 10–20% of cases, while nearly half of homeowners insurance claims in Texas were closed without payment in 2024.
Across all sectors, these trends reveal a growing tension between cost containment and consumer protection—a system designed to manage risk now perpetuates new forms of insecurity.
Where I Live There Is Mold…
Where I live there is mold in the houses
Some others covered in mouses
Insecure frames hold up barely there walls
Lines of empty stores and malls
Where I live seasonally AC and warmth can be scarce, and the heat and cold unrelentingly fierce
Some mandates here, others there, no rhyme nor reason from what we see here
Water will come
Wind will come
They will each have their way of fun
Leaving everything in their way undone
Leaving our already small lives with nothing at all
Parents pay for the babies, kids and young adults still
Individuals with no one share the burden of the cost or fall
From infant to grave, we have policies to cover each phase
But very few claims actually paid
Practical Examples: Long-Term Costs
Car Insurance (26 years):
~$91,800 in total payments — nearly the cost of a new vehicle.
Homeowners Insurance (30-year mortgage):
~$54,000 — equivalent to a home renovation or a third of a down payment.
Combined Insight:
Together, these required coverages exceed $145,000 over a lifetime — roughly the price of a second home or a retirement fund, well not anymore but all these estimates are running very low.
Executive Compensation and the Imbalance of Value
In 2023, Chubb CEO Evan Greenberg earned $27.7 million, AIG’s Peter Zaffino $24.6 million, and Travelers CEO Alan Schnitzer $22 million. UnitedHealth CEO Andrew Witty received $23.5 million, while seven major health insurance CEOs collectively took home $283 million during the pandemic.
Meanwhile, most Americans pay tens of thousands over their lifetimes for insurance that may never pay out. The system’s profitability depends not on paying claims, but on minimizing them.
Proposal for Aligned Functioning (The Insurance Equity Ledger)
With accidents—both human and weather-related—the concept of insurance remains essential in an individual-based society. Yet today, when your house burns down, your neighbors neither rebuild it with you nor possess the skills of earlier generations.
Given the vast sums we pay into insurance incrementally, there should exist a personal and property-based tally—a lifetime ledger of paid premiums attached to both the individual and the insured property.
For example, 101 Main Street, insured continuously for sixty years, should carry an accumulated “insurance equity value” that persists regardless of ownership. This tally could be used proactively for home, health, or vehicle improvements—maintaining stability at a lower cost, covering repairs efficiently after damage, or mandating higher-quality materials to reduce loss in the first place.
Such a system would realign insurance with its original purpose: collective security and continuous maintenance, not indefinite profit extraction. The Insurance Equity Ledger transforms passive payments into active protection—ensuring that what we pay in builds lasting resilience for both people and property.
Closing Note
This essay is part of Public Essays and Proposals, a series exploring the systems that shape everyday life — from insurance and housing to health, equity, and resilience. Each piece invites readers to think critically about structure, balance, and accountability in modern society.
Sources
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Pearson, Robin. A History of Insurance: Fire, Life, and Accident. Routledge, 2010.
Zelizer, Viviana A. Morals and Markets: The Development of Life Insurance in the United States. Columbia University Press, 1983.
Kaiser Family Foundation (KFF). Claims Denials and Appeals in ACA Marketplace Plans, 2023. 2024.
Stat News. “Insurance Claim Denials Compromise Patient Care and Provider Bottom Lines.” May 2024.
Repairer Driven News. “S&P Reports 2023’s Highest-Paid P&C CEOs, and Chubb’s Came in at No. 1.” Sept. 2024.
Express News. “USAA CEO Pay Increases as Executives Profit from Insurance Business.” 2024.
National Association of Insurance Commissioners (NAIC). State Regulation of Insurance. 2023.
U.S. Census Bureau. Health Insurance Coverage in the United States: 2023. 2024.
Insurance Information Institute (III). “Automobile Financial Responsibility Laws by State.” 2024.