The History of Insurance: Risk, Uncertainty and Entrepreneurship

Abstract

The goals of presenting a short review of the history of insurance are to provide a historical perspective on this industry; explain how it has developed with an emphasis on its recent history; and show the relationship between insurance – pooling and transfer of risks- and entrepreneurship - broadly defined as the capability to introduce new combinations of productive factors. The analysis offered here is based on the distinction between risk and uncertainty as indicated by Knight (2002, or.pub.1921) arguing that risk involves situations where a decision maker  face unknown outcomes but known ex-ante probability distributions, while uncertainty is characterized by situations in which the probability distribution of a random outcome is unknown. Consequently, while risk can be covered by insurance, uncertainty normally is not.Against this background, the history of insurance focuses on the development of insurance in developed and emerging markets with a particular attention to Latin America. The historical review is instrumental to investigate on two main aspects: whether insurance and entrepreneurship interact; and whether the widespread availability of insurance leads to a reduction of uncertainty and support the deployment of entrepreneurship.