Life assurance has been available in one form or another in the UK since the late sixteenth century. The first policies were typically only issued for a period of 12 months or for the term of an overseas voyage. By the early eighteenth century, life assurance schemes were starting to emerge, the first of these being the Amicable Society for a Perpetual Assurance Office in 1706. Each member paid a regular subscription and, when they died, their nominees were entitled to receive a lump sum from the society. One problem with life assurance was that initially it proved to be very unprofitable, with the pay-outs to nominees exceeding the premiums collected ahead of the deaths of the insured. That all changed with the introduction of mortality tables, which predicted the statistical likelihood of an individual dying within the lifetime of a particular policy. The first firm to adopt this ‘actuarial’ approach to life insurance was the forerunner of Equitable Life, and subsequently life assurance quickly became much more widespread as a consequence of the skills provided by actuaries.
Another change fundamental to the development of all types of insurance, including life assurance, arose from the Gambling Act 1774 and certain earlier Acts relating to marine insurance. These brought in a requirement that in order to insure something you had to have an interest in it being unharmed – so that is why, for example, you almost certainly have an insurable interest in your own house but not so in your neighbours’ houses. The legislation was required to stop unscrupulous individuals ‘gambling’ on the death of some unknown individual. In one notorious case, a group of men insured an old man who they believed was about to die. Unfortunately for them, he was more robust than they had thought and continued to live. Frustrated by the high premiums they were paying to insure him, they decided to murder him instead and collect the insurance – an act for which they were hanged (Spalding, 2008).
As assurance developed, so did the ability of assurance firms to better assess the risks each person brought to the insurance firm. It was common practice to increase premiums with age, but firms started to decline business or rate it (i.e. apply higher premiums) where the insured had some form of medical condition or brought – through their occupation or pastimes – a higher-than-average risk.