The underwriter sells the policy onto anotherunderwriter or firm of underwriters, while retaining a share of the premium. Confused yet? Think back to Jim and his phone insurance. If Jim resold his 10 dollar phone policy for9 dollars, rather than the 10 he received, then he gets to keep a dollar each for eachof his 100 clients, meaning he has 100 dollars completely risk free.
Similarly, much of the modern day insurancethat flows through Lloyds of London is reinsured out of the building to smaller insurance companiesall across the world. So what starts as a simple agreement betweenthe client and the broker (or Jim and Bob) is spread across a business community whoeach stand to profit from the premium or take a cut of any losses. This is how insurance works – by the spreadingof risk over communities.
So that is how maritime insurance was born.
It was developed through the need of ship-ownersto carry on in business should they lose everything whilst at sea. But what about property insurance? Well around the same time, 1666, the greatfire of London devastated the city where modern day insurance was born, and famous architectSir Christopher Wren, in his great London redevelopment project in 1667, made sure toinclude an insurance office in his new plan.
Now property insurance is commonplace withmost homeowners having a policy in place. Also medical, life, travel, car, and dentalinsurance are all commonly held policies. Even pet insurance is a major insurance businessnowadays. Over time the business model has evolved. Modern day insurance companies are fiercelycompetitive, which is good for you, the client, as polices are priced at their lowest possiblepoint. Companies now look to write as many policesas possible to create a financial pool.
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