In 1666, the Great Fire of London was responsible for the destruction of over 13,000 homes and 87 churches. This massive blaze also caused the displacement of over 70,000 residents. Since the death of the poor was not well documented at this time, the fate of an unknown number of individuals remains uncertain. And while it was mostly poverty stricken residents who were affected by the fire itself, the disaster had some major fall out that affected the entire country economically. After the fire, the number of homeless people climbed exponentially, businesses lost both workers and customers, and disputes arose over whose responsibility it was to pay for damages and rebuilding.
The Great Fire of London pointed out the need for some insurance to be made available to individuals to help recover from this type of disaster, and many different fire insurance schemes were attempted in the years that followed. They weren’t particularly well thought out and eventually, they failed. Marine insurance was the only real functioning type of insurance at this time, and it was used as a model to develop a successful and functional fire insurance company in England in 1681.
It wasn’t until 1732 that an insurance company in the United States issued a fire insurance policy—and it still didn’t really catch on. Benjamin Franklin was a huge proponent of fire insurance and, in 1752 he created Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, a company that refused to offer fire insurance to owners of buildings that were high risk. Unfortunately, that included wooden houses, which left a huge portion of the population—those with the most risk and who actually needed the insurance—without protection.
Things changed in the 1820s when Aetna wrote fire insurance policies by area rather than construction type, and spread their risk out by limiting the number of policies they wrote and making sure they wrote them for both high and low risk properties. This followed the more modern form of underwriting that is still in use today.
Eventually, as regulation of the insurance industry grew, and safety standards in both residential and commercial buildings improved, the risks of fire decreased while the amount of policies that could be issued increased. As fire departments became increasingly less voluntary and their services more dependable, risks fell even more allowing rates to stabilize until fire insurance became a standard part of a homeowners insurance policy.
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