Ten thousand years ago, in the Columbia River Region, which is now Oregon and Washington, the Walla Walla Indians used canoes to transport their trading goods down the Columbia River. They had to navigate through dangerous rapids to get to the place where they traded with other Indian tribes. Invariably, one of their 10 canoes would capsize, losing all the goods of one Indian family. This was a terrible loss to the family, so they decided to share the risk by putting some of each family’s goods into each of the 10 canoes. Thus, the idea of spreading and sharing risk was born. The pure cost, of “insuring” the safety of their goods, was a premium of 10% of the value of their goods.
Chief Freelance Thinker decided to start a “for profit” business to offer insurance to individual canoes that came down the river. He charged the pure cost of risk (10%) plus his business expenses (5%) plus a modest profit (2%). An individual Indian could “transfer his risk of total loss” to Chief Freelance for a “premium” of 17%! Chief Freelance’s business came to be known as, INA (Indian Nation Assurance). That is the history of insurance. The ability to transfer risk enabled entrepreneurs to start successful businesses. This enabled tremendous economic growth in the world. Let’s all be thankful for the invention of insurance! Happy Thanksgiving Day.
Next week we will learn more about insurance. Bet you can’t wait!
P.S.
Chief Freelance made mucho wampum and retired to the good life.
good stuff as usual, harry
ReplyDeleteDear Chief Wampum the VIII:
ReplyDeleteLloyds of London and its predecessors would be interested in your story and patent claims. I'm sure you will be hearing from their lawyers in due course.
I do, however, look forward to your continued explanation of the insurance industry. A most timely treatise would, er, treat, the health insurance industry and dispel the myths and misunderstandings burgeoning our country thanks to the morons on Capitol Hill.
Tsar Pat the well-insured