History of the US Insurance Market (In the Beginning)

Like many of its first institutions, the early insurance establishments of the United States reflected the influences of 18th century England. In 1720, the English Crown granted monopoly status among the colonies (and in Great Britain itself) to two British stock insurance companies: The Royal Exchange and The London. Perhaps as a consequence of this impervious barrier to entry and the joint lack of expertise and capital necessary for successful stock company operation, the first insurance organizations in North America championed the mutual principle embodied in the friendly societies of Great Britain rather than the profit motive of stock companies." Mutual insurance companies have the distinguishing characteristic that they are
owned and operated by and on behalf of their policyholders, in contrast to stock organizations which operate primarily for the benefit of shareholders.

The first insurance company established in the American colonies was a mutual insurance company called the Friendly Society. Founded in Charleston, South Carolina in 1735 while the country was still under British colonial rule, this organization survived for only five years (Baranoff 2004). Seven years later, Benjamin Franklin and other prominent Philadelphians established a mutual insurance organization called the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, the oldest continuously operating insurance company in
the country. In 1759, the Presbyterian Ministers Fund, an organization financed initially by donor contributions and later by policy premiums—became the first life insurance company in the colonies by providing a form of life insurance for Presbyterian ministers.

Not until 1792, over a decade after the American Revolution, was a stock insurance company established in the country: the Insurance Company of North America. This first and earliest venture was short-lived and largely unsuccessfiil, selling only six policies in the first five years of operation (Black and Skipper 2000,p. 52). In 1812, a stock company, the Pennsylvania Company for Insurance on Lives and Granting Annuities was chartered, becoming the first company to sell annuities and life insurance policies to the general public in significant amounts. Prior to 1810, the focus in the nascent American insurance industry had been primarily on marine insurance, though many companies were chartered to deal in other lines like fire and life insurance as well (Baranoff 2004). The first known reinsurance arrangement on record occurred in 1813, when the Union Insurance Company ceded some of its fire risk exposure to the Eagle Fire Insurance Company of New York (III 2005b, p. 137).