America's Fire Insurance History - Home Insurance

The Great Fire of London in 1666 was responsible for the destruction of over 13,000 homes and 87 churches. This enormous blaze also caused the displacement of over 70,000 residents. 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 increased exponentially, businesses lost both customers and workers, 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 help individuals recover from this type of disaster. Many different fire insurance schemes were attempted after the disaster, but 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.

In 1732, an insurance company in the United States issued the first fire insurance policy, but it still didn't really catch on. Benjamin Franklin was a giant 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 an enormous portion of the population without protection.

In the 1820s, things changed when Aetna wrote fire insurance policies by area rather than construction type, and spread their risk out by limiting the amount 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.

Finally, as regulation of the insurance industry grew, and safety standards in both commercial and residential constructions 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 home insurance policy.
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