04/19/23 Copyright macminn.org1

On the history and importance of life and health insurance

Richard MacMinn

04/19/23 Copyright macminn.org2

Objectives

View some of the historical antecedents of life and health insurance

Consider how an individual benefits from life and health insurance

Note how the economy may benefit from insurance markets

Consider the benefits of life and health insurance from an international perspective

Note how economic, demographic, social and political changes affect the operation of insurance markets

04/19/23 Copyright macminn.org3

A brief history of insurance

Code of Hammurabi, circa 1780 B.C.

Greek societies, circa 500-200 B.C.

Roman collegia, during Roman Republic, 510-23 B.C.

04/19/23 Copyright macminn.org4

A brief history

Medieval Guilds, circa 5-14 A.D.– This is the period from the fall of the Roman

Empire to the Renaissance – In England guilds covered perils such as death,

illness, capture, shipwreck, fire, etc.

English Friendly Societies

04/19/23 Copyright macminn.org5

A brief history

Early European Insurers– The first mutual was the Life Assurance

and Annuity Association, 1699– The Society for Equitable Assurances on

Lives and Survivorships was formed in 1765

– The Globe was organized as a stock insurance company in 1803

– The Compagnie d’Assurance Generales sur la Vie was the second insurance company founded in France, 1819

It was a stock company as were those that followed.

– The Deutsche Lebenversicherungs Gesellschaft, 1828,was the first stock life insurer in Germany

Tontines, circa 1689– Last survivor scheme for life insurance– Loreno Tonti

04/19/23 Copyright macminn.org6

A brief history

Early North American Life Insurers– The Corporation for the Relief of the Poor and Distressed Presbyterian

Ministers and for the Poor and Distressed Widows and Children of Presbyterian Ministers, 1759, Philadelphia

This became Provident Mutual Life Insurance Company– The Mutual Life Insurance Company of New York was founded in 1842– The Girard Life Insurance, Annuity and Trust Company of Philadelphia was

established as a stock insurance company in 1836 Girard used a new principle of granting policy owners participation in its profits.

Early Asian Insurers– Meiji Life Assurance Company, 1888, was the first life insurance company

to open in Japan.– Cho-Sun Life Insurance Company, 1921, was the first company capitalized

and owned by Koreans– The Great Eastern Life Assurance Company Limited was founded in

Singapore in 1908.

04/19/23 Copyright macminn.org7

How do individuals benefit from life and health insurance?

Life and health insurance assist saving– Insurance provides an immediate benefit if necessary that could not be

achieved with saving– Insurance provides a hedge for saving by protecting it from adverse events

Life and annuity products provide investment opportunities

– Some life and annuity products can be reasonable long-term saving instruments

These instruments safeguard death proceeds and values Some may protect against claims of creditors These instruments can provide tax deferral

04/19/23 Copyright macminn.org8

How do individuals benefit?

Annuity products provide assured income– A total saving of $100,000 at retirement could be invested at

retirement and at 5% yield $5,000 per year. This of course is subject to being able to continue to invest at the

same rate. This method would eliminate the longevity risk if the principal is

otherwise protected.– A life annuity will utilize the principal and protect against the

longevity risk

Life insurance can preserve an estate– Life insurance is a natural means to provide funds to pay estate

taxes

04/19/23 Copyright macminn.org9

How does the economy benefit from life and health insurance?

Life and health instruments serve as a substitute for government social security programs

As financial intermediaries, insurers mobilize saving and so aide an efficient allocations of capital

Insurance provides and effective hedge against adversity for individuals and firms and so promotes economic stability and growth

Insurance from an international perspective

The importance of life insurance worldwide– Insurance density is the premium per capita within

a country Sigma 4/2007, figure 11

– Insurance penetration is premium per currency unit of gross domestic product, e.g., total premium dollars divided by the US gross domestic product (GDP)

Sigma 4/2007, figure 12

04/19/23 Copyright macminn.org10

What factors affect the life and health insurance market operation?

Price– At least one estimate by Babbel of the price elasticity

puts it in the range of .32 to .92 depending on the policy type and the price index used.

Income– This is the most important factor for life and health

insurance. – The income elasticity is generally greater than one

Inflation Interest rates

04/19/23 Copyright macminn.org11

04/19/23 Copyright macminn.org12

What factors affect the life and health insurance market operation?

Demographics– Populations– Aging populations:

United States United Kingdom Japan

– Education– Household structure– Urbanization and industrialization

Social environment Political environment Internationalization

04/19/23 Copyright macminn.org13

Age pyramid for the United States in 2000

04/19/23 Copyright macminn.org14

Age pyramid for the United States in 2025

04/19/23 Copyright macminn.org15

Age pyramid for the United States in 2050

04/19/23 Copyright macminn.org16

Age pyramid for the United Kingdom in 2000

04/19/23 Copyright macminn.org17

Age pyramid for the United Kingdom in 2025

04/19/23 Copyright macminn.org18

Age pyramid for the United Kingdom in 2050

04/19/23 Copyright macminn.org19

Age pyramid for Japan in 2000

04/19/23 Copyright macminn.org20

Age pyramid for Japan in 2025

04/19/23 Copyright macminn.org21

Age pyramid for Japan in 2050

04/19/23 Copyright macminn.org22

Questions

The roots of modern life and health insurance are arguably found in Greek societies, Roman collegia, and the guilds of the Middle Ages. Compare and contrast the needs served by these organizations and those served by modern life insurers

One life insurance policy can provide a number of benefits to a variety of people. Explain how a number of individuals may benefit from a policy on one individual’s life.

How might one assess the impact of the life insurance industry on the general economy?

Choose two cities in the world and speculate as to how the economic, demographic, social, and political environments are affecting the life insurance markets in those cities.