In the time I’ve worked in finance, insurance has always taken a backseat to investing in the minds of prospects and clients. Everyone has their own personal reason as to why that is. Perhaps it’s a fear of the unfamiliar or they feel like insurance would be a waste of money. I happen to find it really interesting. Putting aside the fact that it’s how I make my living, if you read about insurance, there’s a history behind it that helps to explain the value of it.
It’s Older Than You Know
So, savvy Chinese entrepreneurs approached the merchants and told them that, for a price, they would replace any losses incurred from such events. This was a no brainer. It made a lot of sense to simply shave off a bit of your revenue to ensure that it’s always consistent and more predictable. As time went on, people found new things that they wanted to insure. Perhaps they had a farm and wanted to insure that their cattle wasn’t eaten by wolves. Or maybe they wanted to protect their house from burning down.
Look At How Far Insurance Has Come
Back in the day, insurance was based solely on perception. In order words, the amount that you would pay for insurance was based really on what that insurance was worth to you. How much would you be willing to pay to make sure that you wouldn’t have to face the full financial burden of your house burning down or your boat being lost in a storm?
It was only in 400 AD that actuarial tables were formed to give people a more precise idea of the dollar value of insurance. This would take into account the likelihood of a certain event happening, the average loss, and the revenue generated to sustain the insurers business. This system has become so refined that insurance companies can, with alarming accuracy, predict certain outcomes in one’s life: how long they’ll live, how many times they’ll break their arm, how many times they’ll call in sick, when they’ll buy a house, and the list goes on.
The Ultimate Form Of Insurance
With all the insurance products out on the market, you can usually find a way to insure anything. There is however one form of insurance that is the purest form of insuring, and that’s hedging… but that’s for another post.