Insurance in some forms dates back to prehistory.

 Insurance in some forms dates back to prehistory. Initially, people sold goods in their own villages or gathering places.[citation needed] However, with the passage of time, they turned to nearby villages to sell.[1] Two types of economies existed in human societies:[citation needed] natural or non-monetary economies (using barter and trade with no centralized nor standardized set of financial instruments) and monetary economies (with markets, currency, financial instruments and so on). Insurance in non-monetary economies entails agreements of mutual aid. Such economies can potentially foster institutions such as co-operatives, guilds and proto-states - institutions functioning to provide mutual protection[2] and to encourage mutual survival in adverse circumstances.[3] The "pay-off" for such "insurance" need not involve financial transactions. If one family's house gets destroyed, the neighbors are committed to helping rebuild it. Public granaries embodied another early form of insurance to indemnify against famines.

Babylonian, Chinese, and Indian traders practiced methods of transferring or distributing risk in a monetary economy in the 3rd and 2nd millennia BC, respectively.[4][5] Chinese merchants traversing treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea. Concepts of insurance has been also found in 3rd century BCE Hindu scriptures such as Dharmasastra, Arthashastra and Manusmriti.[6] In England in the mid-18th century merchants and shipowners very largely insured their own ventures themselves, but the need for discounting facilities arose after 1750 with the growing volume of bills drawn against West Indian merchants.[citation needed] Thus some of the more important Liverpool merchants began to exercise the functions of banking.
Merchants have sought methods to minimize risks since early times. Pictured, Governors of the Wine Merchant's Guild by Ferdinand Bol, c. 1680.

Achaemenian monarchs in Ancient Persia received annual gifts (tribute) from the various ethnic groups under their control. This would function as an early form of political insurance, and officially bound the Persian monarch to protect the group from harm.[7]

The ancient so-called “Rhodian Sea-Law”, applying to seafarers and merchants, included a stipulation that if a seafarer was forced to throw cargo overboard to save the ship from sinking, the loss would be reimbursed collectively by his colleagues. This is often cited as one of the earliest examples of insurance law, with some putting its origin in the Greek island of Rhodes as early as 1000 BCE. [8]However, the earliest references to the “Rhodian Sea-Law” appear in late Roman legal sources. [9]

The ancient Athenian "maritime loan" advanced money for voyages with repayment being canceled if the ship was lost. In the 4th century BC, rates for the loans differed according to safe or dangerous times of year, implying an intuitive pricing of risk with an effect similar to insurance.[10]

During the Peloponnesian Wars, some Athenian slave-owners volunteered their slaves to serve as oarsmen in warships. These slave-owners paid a small yearly premium to the Athenian State, which, in case the slave was killed in action, would pay out the owner for the value of the slave. [11]

The Greeks and Romans c. 600 BC set up guilds called "benevolent societies", which cared for the families of deceased members, as well as paying funeral expenses of members. Guilds in the Middle Ages had similar practices. The Jewish Talmud deals with several aspects of insuring goods. Before modern-style insurance became established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.