Many insurance historians trace the basic concept of insurance
back many centuries to the Chinese.
In a principally agrarian society, Chinese farmers were faced with the problem of getting their crops to market. Most of them simply loaded their crops on a boat and used the rivers as transportation. Occasionally though, a boat would overturn and an entire harvest would be lost. The farmers began to transfer this risk to other farmers in a brilliantly simple way. Ten farmers from one area would get together at harvest and load the boats by putting one-tenth of every farmer's crop on each boat. If a boat sunk, each farmer lost a little, but no one lost everything.
This concept of sharing risk is the basis of all insurance products. A modern-day policy owner trades a small known loss (premium) for the insurance company's promise to pay for a large, unknown loss should it occur. All of the policy owners lose a little, but no one has to take the risk of losing everything.