The History of Insurance Part 1

Many readers will have heard of the expression ‘an eye for an eye, a tooth for a tooth’ but have you ever wondered where this originated?

The answer is that this was one of two hundred and eighty-two rules set out in what is known as the Code of Hammurabi.

The code dates back to around 1750 BC when the Babylonian King Hammurabi fashioned a compendium of 282 laws that set standards of conduct and justice for his empire in ancient Mesopotamia.

Incidentally, Mesopotamia from a Greek word meaning “between rivers” refers to the land between the Tigris and Euphrates rivers broadly defined to include the area that is now eastern Syria, south-eastern Turkey, and most of Iraq. Babylon was a city in Mesopotamia whose ruins lie in modern-day Iraq 59 miles southwest of Baghdad and home to one of the seven wonders of the ancient world – the Hanging Gardens of Babylon.

The code itself covered everything from property rights and criminal behaviour to slavery and divorce.

The Code took a brutal approach to justice, but the severity of criminal penalties often depended on the identity of both the lawbreaker and the victim.

For example, rule 200 states “If a man knock out the teeth of his equal, his teeth shall be knocked out.”

However, committing the same crime against a member of a lower class was punished with only a fine.

Rule 196 states “If a man put out the eye of another man, his eye shall be put out.”

Other similar punishments were included so that in rule 195, “If a son strike his father, his hands shall be hewn off”.

In other areas, the code was surprisingly ahead of its time, as several rules were concerned with an ancient form of the minimum wage.

Field labourers and herdsmen were guaranteed a wage of “eight gur [a volume of just over 300 litres] of corn per year,” (Rules 257 and 261) whilst ox drivers received six gur (Rule 258).

Doctors, meanwhile, were entitled to 5 shekels (a shekel was about 8.4 grammes) for healing a freeborn man of a broken bone or other injury (Rule 221), but only three shekels for a freed slave (Rule 222) and two shekels for a slave (Rule 223).

None of this has any relevance to insurance but the code can be seen to address matters such as insurance and risk management in other areas.

For example, it could be said that an early form of social insurance was in place in respect of robbery. Whilst Rule 22 dealt with the robber themselves – “If any one is committing a robbery and is caught, then he shall be put to death”, Rule 23 provided a form of ‘state’ compensation for the victim:

“If the robber is not caught, then shall he who was robbed claim under oath the amount of his loss; then shall the community, and…on whose ground and territory and in whose domain it was, compensate him for the goods stolen.”

The code also enshrined an early form of bottomry – whereby a ship is used as security against a loan to finance a voyage, the lender losing their money if the ship sinks. The loan with interest is payable if the ship completes the voyage.

The merchants of Babylon, in seeking new markets, would enter into a business relationship with a trader and provide them with the goods they wished to sell. The trader gave as security “himself, family and property, in town or country, on the road, or in stock.”

The trader would share in any profit when selling the goods but had to repay the capital value of the goods and interest if the goods were sold at a loss or indeed lost either though negligence or robbery.

Whilst this form of agreement worked well in many cases, losses by robbery led to many traders unable to repay their principal and thus the trader and their family became the property of the principal who could keep or sell them as slaves or even kill them!

To overcome this intolerable position, a compromise was reached in terms of robbery as

Rule 103 states:

“If, while on a journey, an enemy take away from him anything that he had, the broker shall swear by God and be free of obligation.”The Code of Hammurabi had some interesting rules governing building work in terms of liability, indemnity and risk management.

Rule 229 – “If a builder build a house for some one and does not construct it properly and the house which he built fall in and kill its owner, then that builder shall be put to death.”

Rule 230 – “If it kill the son of the owner, the son of the builder shall be put to death.”

Rule 231 – “If it kill the slave of the owner, then he shall pay slave for slave to the owner of the house.”

Rule 232 – If it ruins goods, he shall make compensation for all that has been ruined and inasmuch as he did not construct properly this house which he built and it fell, he shall re-erect the house from his own means.”

Rule 233 – “If a builder build a house for some one, even though he has not yet completed it, if then the wall seems to be toppling, the builder must make the walls solid from his own means.”

It could be said that rules 229 – 231 are an early form of risk management in terms of the quality of the build – it would certainly focus the mind on preventing poor workmanship!

Rules 232 and 233 deal with liability and indemnity.

Similar rules on merchantable quality, liability and indemnity governed shipbuilders and boat hirers (with and without crew).

Whilst the saying “An eye for an eye, a tooth for a tooth” may be known by many, we now know that the society which came up with these laws also gave us early forms of liability, risk management and risk transfer which over the next centuries and millennia would develop into the insurance industry we recognise today.

Isn’t history great?