Short Term Insurance Then and Short Term Insurance Now

Insurance is a very sophisticated risk management mechanism. Although it cannot prevent troublesome events from happening, it does provide you with the resources to financially recover the damages you have suffered. Not a new concept by any definition, insurance saw its first light of day in the mists of time, and gradually evolved over more than 4,000 years into what it is today.

Short Term Insurance Then…

Risk is everywhere and in everything humankind has ever undertaken where goods are involved. Even in the darkest recesses of human history, exchanging goods with a neighbouring tribe would have presented a whole range of risks to both the trading parties. Only, back then, objectively quantifying these risks, was nearly impossible to achieve.

From these ancient bartering systems, formal economies gradually evolved. Instead of exchanging goods, merchants and farmers started exchanging currencies (shells, pieces of silver, gold, etc). As a direct result of this modernized trading method, the risks associated with doing trade became measurable in currency terms, and subsequently somewhat more tangible.

Not unlike today, lakes, rivers and oceans were critical from a trade perspective. Large amounts of goods could be loaded onto a suitably sized ship and, if all went well, the goods could be safely delivered to whomever it was that was buying. However, moving a valuable load in this way presented an array of risks. Mutiny, fire, pirates, storms and accidents were the worst because these would inevitable destroy the entire shipment.

Short term insurance mechanisms were put into place to cover the financial losses merchants could potentially suffer should any of these ills come to bear. Although different nations had different ways of accomplishing this, nearly all of them had two parties to the contract: a merchant and an investor. The investor would extend a loan to the merchant, which would comprise of the cost of his freight and a risk portion. If something were to happen to the ship, the loan would be cancelled but, if all went well, the merchant would be required to pay the investor both the loan- and the risk portions that they initially agreed upon.

Normal consumers like you and I rarely, if ever, had the benefit of insuring their possessions until the Great Fire of London took its toll and Nicholas Barbon established the first consumer targeted insurance company in 1680. Their core business was insuring brick and frame houses.

Short Term Insurance Now…

From here different types of short term insurance products were developed to meet the demands of increasingly sophisticated consumers. In fact, there are very few physical things that cannot be insured today: movie stars, models and other public figures are known to insure specific body parts for obscene amounts of money, animal lovers take out insurance on their favourite pets and, on the more mundane level, many of us have insurance on our homes, cars and other valued earthly possessions.

Broadly speaking, South African consumers will typically have at least the following short term insurance policies in place: homeowners insurance, household insurance, and vehicle insurance.

Purchasing homeowners insurance is mandatory if you need a mortgage bond on a property. This type of short term insurance policy covers the physical structures (house, outbuildings, fences, swimming pools, etc.) and will compensate you for any damages you stand to suffer as the result of fire, natural disasters, accidents, theft, landslides, malfunctioning fittings such as geysers, etc. Non-structural items and items not considered to be fittings are not covered under a homeowners insurance policy.

Household insurance addresses that gap. Your household insurance policy will normally make good for the loss, damage or theft of the movable possessions you have on your property. Items of value, such as jewellery, golf clubs, Persian carpets and other collectors’ items will collectively be subject to a ‘value ceiling’. If you want to be covered for the market related values of these items, you will need to specify the items and pay an additional sum of money as part of your premium. Although many short term insurers allow you to add your vehicles to your household insurance at an additional charge, it is more common for consumers to purchase a separate policy to cover the risks associated with owning a vehicle.

Vehicle insurance, like homeowners insurance, is obligatory if you finance a vehicle through a lender. This type of short term insurance policy will afford you the choice between three types of cover: Third Party, Third Party, Fire and Theft, and Comprehensive. If you are a 4×4 enthusiast, you can purchase off-road vehicle insurance in addition to the standard types of cover as a safeguard against mishaps off the beaten track.

To conclude

Insurance is one of the oldest and most resilient institutions in the world: it has outlived monetary systems, empires and religions, and survived a great many disasters – both manmade and natural. Just like it added value then, short term insurance is still adding value right now. And, as it continues to evolve into the future, the institution of insurance may yet to prove to outlive the many other institutions that are still likely to come…