Learn about the birth of actuarial science and life insurance, including the development of population tables, the origins of one-year term life insurance, and the advancements in the insurance field. Discover the role of data analysis in studying population trends, explore the laws of probability in insurance, and uncover interesting tidbits like recipes for frozen Roo and gazpacho.
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Quick takeaways
Sir Edmund Halley's population table in 1693 provided a scientific basis for life insurance by calculating survival odds and chances of survival at different ages.
Early forms of life assurance focused on guaranteeing financial support for dependents in case of the policyholder's death, and the issuance of the first life insurance policy in 1583 marked an important milestone in its development.
Deep dives
Halley's Table: A Breakthrough in Actuarial Science
Sir Edmund Halley's population table, published in 1693, marked a significant step in actuarial science. Using data from the city of Breslau, Germany, Halley compiled a table showing the numbers of people alive at each age. This table allowed for the calculation of survival odds and chances of survival at different ages. Halley suggested that life insurance could be regulated based on these statistics, providing a more scientific basis for the industry. His table became a foundation for the work of assurance societies, such as the Society of Assurance for Widows and Orphans, which used the table to assess mortality rates and potential expenses. Halley's table remains significant and has been analyzed and written about for centuries.
The Evolution of Life Assurance
Life assurance, or life insurance, has a long history dating back to ancient Greece and Babylon. Early forms of life assurance focused on guaranteeing financial support for dependents in case of the policyholder's death. Insurance arrangements were also made to cover the loss of goods, primarily in maritime scenarios. The experimental and speculative periods of life assurance eventually gave way to a period of scientific exactitude, where mathematicians like Pascal and Fermat developed laws of probability that could be applied in insurance calculations. The issuance of the first life insurance policy in 1583 and the publication of Sir Edmund Halley's population table in 1693 marked important milestones in the development of life assurance.
The Society of Assurance for Widows and Orphans
The Society of Assurance for Widows and Orphans, established in 1699, was one of the earliest assurance societies. The society aimed to provide financial support to widows and orphans by having members contribute a small fee whenever a member died. The fees would then be distributed as benefits to the bereaved. Halley's population table and the bills of mortality were used as the foundation for the society's workability. Membership in the society required certification of age and good health. Claims were paid out after approval by a committee of trustees, ensuring transparency and fair distribution of benefits.
Insurance Law and Key Court Cases
During the early years of life assurance, insurance law was still developing. Court cases played a crucial role in shaping insurance regulations and resolving disputes. One notable case involved the interpretation of contract language and timing specifics. The court ruled that phrases like 'from the day of the date' meant the policy went into effect at midnight, while 'from the date' would have meant coverage began on the day of signing. This case demonstrated the importance of precise wording in insurance contracts. As insurance law continued to evolve, more detailed regulations were established to uphold standards and ensure fairness for both policyholders and insurers.
Actuarial science is all about calculating risk – risk of injury, illness, death, risk of market shifts and financial outcomes. Part one covers the earliest population tables and early examples of life insurance and assurance.
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