In the world of insurance, it’s easy to get lost in the sea of policies and premiums. But have you ever stopped to wonder when exactly insurance companies started operating for profit? As it turns out, the history of insurance is a long and complex one, with plenty of twists and turns along the way.
In this blog post, we’ll take a closer look at how insurance evolved over time – from its earliest beginnings as a community-driven safety net to its modern-day incarnation as a lucrative business model. So buckle up and get ready for an informative ride through the fascinating world of insurance!
The History of Insurance
The history of insurance can be traced back to ancient civilizations where people took out provisions for the future in case of illness or death. Over time, these provisions became formalized into contracts between parties that insured each other. The first company to become a for-profit business was the Dutch insurance company, Nederlandsche Koloniale Indemnity Company (NKIC), which was founded in 1621.
In the early days of capitalism, many firms were not profitable and were actually loss making. However, as insurance companies began to make money through premiums and investments, they started to provide more services such as investment advice and stockbroking. This led to the development of commercial insurance and eventually the modern insurance industry we have today.
The Rise of the For-Profit Insurance Industry
In 1970, only 5 percent of American companies were classified as insurance companies. By 2013, that number had grown to nearly two-thirds (63 percent). This dramatic shift can largely be attributed to the growth of the for-profit insurance industry.
Historically, most American insurers were nonprofit organizations. However, in the 1970s, a number of for-profit insurers began to emerge. These companies argued that they could provide more efficient and cost-effective services than traditional nonprofit insurers.
Today, the for-profit insurance industry dominates the market. According to data from The American Insurance Association (AIA), approximately 79 percent of all commercial insurance premiums are paid by for-profit insurers. This trend is likely to continue: AIA expects that by 2020, for-profit insurers will account for 95 percent of all commercial premiums paid in the U.S.
There are a few reasons why the for-profit insurance industry has thrived over time. First and foremost, for-profit insurers are able to generate a greater return on investment (ROI) than their nonprofit counterparts. This advantage is due in part to their ability to charge higher premiums and offer lower rates on policyholders’ claims.
The Impact of For-Profit Businesses on the Economy
As the economy continues to recover, there are increasing calls for reinstatement of Glass-Steagall, a regulation that once separated commercial and investment banking. The argument is clear: Too much power resides in the hands of banks and Wall Street firms, which put the economy at risk when they make risky investments.
But Glass-Steagall was repealed in 1999, under president Bill Clinton. Why? Politicians on both sides of the aisle argued that it would stymie economic growth and prevent new businesses from coming into existence.
So what happened to those companies that were shut out of the banking system? Well, some turned to insurance as a way to make money. And while this industry has seen its share of problems – such as high premiums and claims costs – it remains one of the least-regulated profit centers in American business.
This should come as no surprise given that insurance companies have long been considered quasi-governmental entities. They’re granted monopolies by state governments (where they’re called “charter” companies) and are usually exempt from many consumer protection laws. This gives them considerable power over their customers – and over lawmakers who might want to rein them in.
The result is an industry that’s incredibly profitable but also incredibly opaque and prone to abuse. That’s why we need more Glass-Steagall – not less.
The Future of For-Profit Insurance
What began as a way to help people in need has slowly become a business model for insurance companies. For-profit insurance was first introduced in the late medieval period as a way of raising money for churches and other charitable organizations. However, it wasn’t until the late 1800s that for-profit insurance became a common business practice.
The main reasons for this transition were twofold. First, many insurers saw for-profit insurance as a way to make more money than they would from traditional forms of insurance. And secondly, lawmakers felt that it was important for companies to be able to generate profits in order to maintain their own viability and prevent them from being taken over by larger rivals.
Today, for-profit insurance remains an important part of the industry. In fact, according to research from Aon Hewitt, nearly two thirds of all U.S. commercial insurance is now sold through for-profit companies. This trend is likely to continue as more people turn to private health care and other services that are not currently covered by government programs like Medicare or Medicaid.
Conclusion
As we all know, the healthcare system in America is broken. The costs of healthcare continue to rise while the quality of care falls short. This problem has been exacerbated by the fact that insurance companies have become for-profit businesses. In order to make a profit, insurance companies require large amounts of paid premiums from their customers, which in turn drives up the cost of healthcare and makes it difficult for people to get coverage.
There are various ways that you can help bring about change and reform in the American healthare system, but one important step is to get involved with activism and work towards changing the way our insurance companies operate.