The Insurance Market

Abstract

During the eighteenth century, insurance was regarded as a form of gambling. In Britain, wagers on birth, marriage and death was controlled by the Gambling Act of 1774 and the Annuity Act of 1777. Also, it was not clearly understood that different forms of insurance have different special features and that the nature of their markets also vary accordingly. For example, the market for life insurance has certain special features which distinguishes it from the market for fire insurance. Life insurances are usually long-run contracts and life insurance with profits is also a form of saving. This requires that firms selling life insurance should have a certain degree of reputation and respectability. On the other hand, fire insurances are usually short-run contracts and therefore require a lesser degree of trust. Moreover, in the earlier days of insurance, the economic class divisions in most countries were more pronounced than now. Only the rich and the middle-class could afford to save and could dream of making provision for their families after death. Therefore, the market for life insurance was directed only towards this group. This further accentuated the need for the agents and the directors of the insurance firms to be drawn from the upper class of the society. This ‘reputation factor’ played an important part in the early development of the life insurance market in Britain. Between 1800 and 1850, in Britain, the number of companies insuring life rose from 6 to about 150 and the size of the market increased from £10 million to £150 million.