How people insured each other before there was insurance

A burial club's rulebook, AD 136

The clearest surviving picture of how ordinary people pooled risk is carved in stone. In AD 136 a club in the Italian town of Lanuvium, dedicated to the goddess Diana and the deified youth Antinous, had its by-laws inscribed. To join, you paid 100 sesterces and an amphora of good wine. Dues were 5 asses a month. When a member died, the club paid 300 sesterces, of which 50 went to those who walked in the funeral procession. A member six months in arrears lost the benefit. If a member was a slave and his master refused to release the body, the club held a funeral with an image in its place.¹

Every element of a modern insurance policy is there: an entry fee, a regular premium, a defined benefit, a lapse rule, and a clause for the hard case. What is missing is a company. The members were the insurer.

Guilds and friendly societies

Medieval guilds kept welfare funds for sick and elderly members and supported widows and orphans.² Their successors in Britain were the friendly societies: clubs into which working people paid weekly and from which they drew in sickness, old age and death. Parliament first recognized them in 1793, in a law meant to reduce the burden on poor relief.³ Women had their own. The York Female Friendly Society dates from 1788, and in 1874 more than 27,000 women belonged to 460 female societies in England and Wales.⁴

The scale by the end of the nineteenth century is hard to credit now. When the 1875 Act took effect, 11,282 registered societies reported 3,404,187 members and funds of £9,336,946. By early 1905 registered societies and their branches numbered 29,588, with 13,978,790 members and £50,459,060 in funds.³ Fourteen million members, in a country of about forty million people, insuring one another.

The rotating pool

On every continent there is a version of the same device. A group agrees to pay a fixed sum into a pool each month. Each month one member takes the whole pool, in turn, until everyone has had it once. It is called a tanda in Mexico, a susu in West Africa and the Caribbean, a stokvel in South Africa, a hui in China, an arisan in Indonesia, a chit in India, and a dozen other names.⁵ The first academic study was in 1964, and a later scholar called them "the poor man's bank".⁵ Indian chit funds were documented by a colonial official in 1887 and have had their own Act since 1982. In the auction form, the member who bids the biggest discount takes the month's pool, and the discount is shared among the rest.⁶

The pool has no loss ratio, because there is no one in the middle. Every rupee in comes out to a member.

The tontine and the dowry fund

Two devices used the state as the pool. The tontine, proposed to the French crown in 1653 and first organized in the Dutch town of Kampen in 1670, paid an annuity to a group of investors, with the shares of those who died passing to the survivors. France sold one in 1689 and England in 1693. American life insurers adopted a version from 1868 and sold about nine million policies over four decades, until a New York investigation in 1905 and 1906 curtailed them.⁷

Florence in 1425 set up a public fund into which a father deposited money when his daughter was about five. It earned a guaranteed 11 to 12 percent over seven and a half or fifteen years and paid out as her dowry, but only after the marriage was consummated. Until a reform in 1433 the deposit was forfeited if she died unmarried, and almost nobody used it. After the reform they did.⁸ A dowry was a daughter's insurance, and the city ran the fund.

The granary and the moneychanger

Some risks were pooled without money. China's "ever-normal granary" dates from 54 BC: the state bought grain in good years and sold it in bad, to hold the price steady.⁹ The Babylonian law code went further: if a storm or drought destroyed the crop, that year's debt and rent were canceled.¹⁰ Crop failure was the lender's risk, by law.

And the oldest surviving system for sending money home, the hawala, is documented in India from 1327. A broker in one city takes cash and a broker in another pays it out, on trust between the brokers, with no money moving between them at the time.¹¹ It still runs.

What was in the middle

In each of these arrangements the money went from members to members. There was administration, and sometimes fraud, but there was no shareholder, no sales commission and no marketing budget between the premium and the benefit. That is the baseline against which any modern insurance product can be measured. The question a household should ask of a policy is the question the Lanuvium club answered on its stone: how much goes in, how much comes out, and to whom.