Insurance was created to spread risk from individuals to multitudes. Spreading the risk from one person to many is the essence of insurance. The risk-spreading model has taken many forms over the centuries.
In the days of sailing ships and galleys powered by slaves pulling on oars, merchants found shipping to be inherently risky. The risks of shipping by sea were clearly too much for an individual merchant to bear. The loss of one ship could bankrupt a merchant, so the merchants spread the risk of their business enterprises among each other. With rudimentary insurance, the risk of shipping was equitably spread among those subscribing to the loan, and no single merchant suffered when a ship was lost at sea.
Originally, insurers were merely merchants who occasionally invested in insurance. As the volume of trade increased in the seventeenth century, some merchants specialized and became the first professional insurers.
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