The History of Homeowners Insurance in America
Wed Nov 15 2017
We now take insurance for granted in many ways. We would argue that many carriers take their clients for granted as well, but that’s a topic for another post. At one point, though, the idea of insurance was revolutionary: pooling risk so that anyone impacted by a catastrophe was able to rebuild their home without being put on the street. Today, an insurer will cover almost anything for the right price.
How Home Insurance Got Its Start
The concept of insurance dates back several centuries. The Great Fire of London (1666), when more than 13,000 homes were destroyed, is regarded as the genesis of modern insurance. Insurance existed in various forms before this, but it lacked the rigor and formality of today’s policies. In the 17th century, each policy only covered one peril (i.e., one thing that could go wrong).
If insurance had not changed, a modern homeowner would need separate policies for fire insurance, lightning insurance, burglary insurance, and so on. Today, all of these are now covered by a basic homeowners insurance policy.
It’s important to note that during the time homeowner’s insurance originated, homes were primarily made of wood. Wood structures burn easily, which posed a problem. To compound that problem, developers built homes closer and closer together as the population grew, which increased the fire risk. People began to understand the importance of protecting their homes.
Insurance Crosses the Pond
Fast forward to 1732. Insurance has made its way to Charles Town (modern day Charleston) South Carolina, where the first company to cover fire insurance was founded. It wasn’t until 20 years later that noted insurance entrepreneur Benjamin Franklin popularized the coverage. His company, Philadelphia Contributionship for the Insurance of Houses from Loss by Fire (which is still in business) was formed in 1752. The company was instrumental in helping people prevent fires and setting industry precedents.
In the next century, insurance took off around the United States. What began as just insuring the home against fire quickly blossomed into a full fledged, lucrative sector: life (which was originally designed to help widows and children), theft, disability, commercial, and auto insurance to name a few.
The Development of Regulations
At this point in history, insurance was more or less a free-for-all: regulations were basically nonexistent, monopolies were forming, and minority groups were excluded. Carriers charged consumers whatever they wanted for premiums, and were often not able to pay out on claims (like a ponzi scheme).
At the beginning of the twentieth century the government made gradual regulatory headway in the private insurance sector.
The Social Security Act of 1935, which guaranteed citizens' rights to unemployment insurance, and the McCarran-Ferguson Act of 1945, which shifted governing authority for the insurance industry to the states, were two of the most notable regulations.
With this oversight (as well as good old-fashioned constant competition), insurance companies have had to eliminate discriminatory practices, offer more competitive prices and payout verifiable claims.
After looking back to the history of homeowners insurance, we’re even more excited to be able to be a part of the next round of fundamental insurance innovation - a better buying process, more accurate risk pricing, and efforts that help homeowners actively avoid damage to their home.
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