Friday, July 31, 2015

The History of Insurance

Insurance as a concept has been around as long as humankind in some form or fashion. Insurance at its core is about the distribution and management of risk, and as thinking animals, man has been doing so for thousands of years. Whether it was hunting in a group to minimise risk of injury or splitting vital goods among different carriers on a dangerous trail through the wild, both things are at their essence about the distribution of risk. They are 'insurance'.

As a more formal enterprise involving money, insurance has been with us since the ancient world. The 1750 BC Babylonian Code of Hammurabi included reference to a debtor not having to repay a loan if some horrendous unforeseen event should befall them. These events included natural disasters, disability or death. Early Mediterranean naval merchants received loans to fund their shipments. When they did so, the merchants paid the lender an additional fee in exchange for a guarantee from the lender to cancel the loan if some woe should befall their shipment at sea.

The ancient enscription of the 'Code of Hammurabi'.

In medieval Europe, insurance was carried out in the guilds. The guilds with more money behind them set aside coffers of gold and currency that were used as an insurance fund. If a guild member's house burned down or they were robbed, the guild would compensate them using money from this fund. If a master was disabled or killed, this fund would go to support their widow and any family they may have left behind. In this way, the guilds offered forms of home insurance and life insurance.

The first known insurance contract was from Genoa in 1347 AD, and from there maritime insurance developed widely, including contracts that had scaled costs based on the differing risks of certain routes and voyages. Moving into the enlightenment and Early Modern Europe, the process of underwriting first came to be. Wealthy investors and those who wished to invest would take on responsibility for certain ship's cargo in voyages to the new world. If that cargo were lost or destroyed, refunding would be their financial responsibility. In exchange, these investors (the first underwriters) would be promised a share of the riches, crops or precious metals the voyages discovered in the Americas (which were believed to be teeming with them). The main appeal for these underwriters was the acquisition of new world tobacco.

Tobacco was just as addictive in the Early Modern Era, as it motivated the first underwriters to 'insure' voyages to the Americas.

Formalised property insurance came into being in the aftermath of The Great Fire of London in 1666. The unprecedented devastation of the fire was estimated to have claimed the properties of up to 70,000 of the city's 80,000 population. Groups of the underwriters mentioned previously, who had up until this point only dealt in maritime insurance, began to see the need for fire insurance, so they formed companies and offered to the general public at a price (the 'premium'). The development of insurance was also contributed to by the development of mathematics. The Frenchman Blaise Pascal discovered a numerical way to express probabilities, and this was applied to risk of certain events. In the wake of this discovery, it became possible to assess and give costs to various categories of risk based on their prevalence or probability of occurring. This is why today, when you go to purchase life or health insurance, your premiums will be higher if you are older or in more infirm health (you present a higher probability or 'risk' of a claim).

Whilst the insurance business began to thrive in Europe, overseas it was a different matter. In America especially, colonial life was deemed to be far too fraught with risk for any prospective insurer to even touch, lest they find themselves rapidly bankrupt. As a result, it took almost a century for insurance to become widespread in America after its initial colonisation. When it finally did however, more recent developments from Europe were incorporated into its design. At this time, all the hallmarks of modern insurance were in place and whilst insurance continues to change and develop to this day with the technology and the times, the core bedrock remains the same.

It's safe to say that insurance will always be part of society in one way or another. The process of distributing and managing risk seems to be engrained into our social being and our rational minds, as does the desire for profit and protection which informs both sides of the insurer/policy holder relationship.

Thursday, July 16, 2015

Bali volcanic ash sends crucial message about travel insurance.

Mount Raung in Bali has recently erupted, spewing tons of volcanic ash into the air and wreaking havoc on flights. The eruptions began on June 29th, and their impact has been felt on unfortunate travellers trying to get home for over two weeks now. Those with comprehensive travel insurance, purchased before the cut-off date, will likely find their accomodation, transport and meal costs reimbursed. Those without it find themselves in a sticky situation - having to pay the costs out of their own pocket. Many of these unfortunate travellers will have budgeted on their trip lasting the planned length of time and will be left considerably out of pocket by the eruption.

Impatient travellers wait for flights out of Bali.

Estimates show that 40% of Kiwis that travel to Bali on a weekly basis have no travel insurance. Those who were stranded there could be facing thousands in unexpected costs that could hugely affect their finances and life (after all, lots of us don't have huge cash reserves behind us for a rainy day). 

The lingering Bali ash saga sends a clear message that we all need to be more vigilant about our travel insurance and going without is probably a risk that's not worth taking. I myself discovered this fact on a trip to the United States where my connecting flights were cancelled and I found myself stranded in Los Angeles for two extra days waiting for a new flight home. Being covered ended up saving me close to $1,000 in flight alteration costs and extra accomodation. Those stranded in Bali face far worse due to this lingering and unexpected natural disaster. A secondary message from the disaster is that the lower costs of a basic policy may be tempting, but a comprehensive option may be worth the extra investment. Those with just basic cover stuck in Bali may only receive limited reimbursement, if any.

For those that do have a comprehensive travel insurance policy and face delays while overseas, it's crucial that you get everything possible in writing. This includes confirmation of delays or cancellations from the airline, transport receipts, hotel bills and meal receipts. If in any doubt at all, get it in writing. Also, read your policy carefully (including the fine print) and know exactly what you're covered for before you make decisions so that you won't face any unexpected surprises on your return home.

If you have any questions about travel insurance and what's the best option, you can talk to our travel insurance experts at Hood Insurance Brokers. Above all, be vigilant, know the conditions and be safe. Take the smaller cost of insurance beforehand just to be safe. Travel policies also cover far more than unexpected delays, including lost luggage, theft and medical costs while overseas.

Hood Insurance Brokers: A member of Spratt Financial Group.
A member of Spratt Financial Group.

Financial News (July 2015)

Spratt Financial Group - Breaking News

1. Dunedin flood insurance bill found to be $28 million. - Radio NZ News

When South Dunedin experienced 3 months worth of rain in a single day, the damage was extensive. There were 2,000 domestic claims and 170 claims for damaged vehicles with claims totalling $28 million.

2. Westpac loosens apartment lending rules. - Good Returns

Changes have been made to make things easier for borrowers and first home buyers, by increasing the LVR maximum from 80% to 85% with certain conditions and limitations.

3. Options discussed to improve Kiwisaver. - Good Returns

Options are being discussed at a workshop on IRD's annual kiwisaver day on August 10th. Many proposed initiatives include better education for the general public about the key positive features of kiwisaver  as well as ensuring savers are in the most beneficial choice of fund.

4. Advice: Being vigilant about financial abuse. - Fisher Funds (NZ Herald)

Financial abuse can happen, from both untrustworthy advisers and fund managers as well as from members of one's own family. People are urged to be vigilant about who they trust with their money and look out for members of their own family when they make big financial decisions.

5. Expert: Financial skills among the general public prove to be poor. - NZ Herald

Whilst most people are good at looking after their money on a daily basis, they tend to make poor decisions for their future, according to a financial advice expert.

6. Kiwis see economic issues as the biggest problem for NZ. -

44% of surveyed New Zealanders declared economic issues as the biggest problem facing the country. A growing 14% of Kiwis also view the housing shortage as the greatest concern (up 4% from March 2015 figures).

7. Auckland housing market 'continues to go mad' - NZ Herald

In the wake of Labour's controversial release of housing data highlighting the possible impact of foreign investors, Auckland's property market continues to increase 10 times faster than the remainder of the country according to the most recently released data.

Spratt Financial Group - Insurance, Investment and Lending
For Insurance, Investment and Lending Service visit our official website here.

Monday, July 6, 2015

Staying Healthy: The Health Benefits of Sleep

Our staying healthy series aims to give you helpful tips and advice to keep you in tip-top shape, because staying healthy is an insurance policy all of its own. In previous additions we have discussed how to reduce stomach fat, general weight loss tips and if chocolate can help prevent obesity and diabetes. In this installment, most people already know that we need sleep. But sleep (and the right amount of sleep) has even more practical benefits to your health than you think.

1. Improving Memory.

Sleep is crucial to processing and consolidating information in your mind, which is why a good night's sleep before a test or exam is often a far better idea than burning the midnight oil studying. Studies have shown that if you're trying to learn something, a good night's sleep is crucial to keeping your precise mental functioning intact.

2. Improving weight issues.

Research conducted by the University of Chicago found that subjects that were well rested lost considerably more fat whilst on a diet than subjects that were sleep-deprived. The subjects in the first category lost approximately 56% than the sleep-deprived group. The same areas of the brain are responsible for both sleep and metabolism, so good sleep can help maintain a healthy and not excessive appetite.

3. Sleep can reduce stress.

Sleep refreshes your mental processes and regulates the level of hormones in your body, both of which can become askew through considerable stress during a hard day. It also provides better control of your blood pressure. Health experts recommend attempting to get into a routine of going to sleep and awakening at around the same time each night, whilst giving yourself some wiggle room for a late night or two every once in a while. If you are over-stressed, do your utmost to get yourself a good night's sleep.

4. Sleep lowers your risk of heart disease and diabetes.

A somewhat shocking study investigated the effects of disturbing the sleep patterns of 10 previously healthy young adults with shift work. After only four days, three out of 10 had blood glucose levels that would qualify them as pre-diabetic. Many other studies have testified to good sleep lowering the risk of heart disease and heart attacks over the long term.

5. Improving reaction times/preventing accidents.

A bad night's sleep or, even worse, no sleep at all, is the equivalent of one or more alcoholic beverages in terms of its impact on your driving. Lack of sleep means that your reaction times are slowed and your decision making is impaired. In the Unites States, the National Highway Traffic Safety Adminstration found in 2009 that tiredness accounted for the highest proportion of fatal single car crashes, even higher than alcohol. For the safety of yourself and other road users (as well as avoiding vehicle insurance problems) a good night's sleep is essential.

Sleep affects almost every tissue in your bodies, including hormones, your immune system, your appetite, blood pressure and the health of your heart. A good sleep schedule maintained well is crucial for your functioning, and will definitely help you in staying healthy.