Farming and insurance are at opposite ends of the risk-taking spectrum, which makes it interesting that Iowa’s status as an insurance capital is rooted in the state’s agricultural heritage.  

Farming is, and always has been, a high-risk business. Farmers go into debt every year to plant a crop, knowing that success depends largely on the weather and fickle market prices. Meanwhile, insurance is by definition risk-averse. Its sole purpose is to lower risk.

To better understand the connection between farming and Iowa’s insurance industry, it helps to know something about the history of insurance.

The concept of insurance originated 5,000 years ago with Chinese merchants who reduced the risk of transporting goods on hazardous rivers by distributing their wares among several vessels.

Babylonians refined the concept by creating cancellation fees for merchants who borrowed money to transport goods. The purpose of the fee was to cover the cost of canceling loans when shipments were lost.

The first insurance contracts that separated risk from loans were written in Genoa, Italy, in the 14th century, which is how the Italian word for promise, “polizza,” became “policy.”

The concept of property insurance is more modern. It can be traced to the loss of more than 13,000 buildings in the Great Fire of London in 1666, which resulted in the establishment of the first fire insurance company in 1681.

Life insurance followed in the early 1700s with age-based premiums and mutual insurance associations arriving later that century.

The creation of mutual associations was important because they spread risk widely among policyholders, as opposed to a narrower distribution among the bankers and shareholders who financed early insurance operations.

The arrival of railroads and rail passenger travel in the mid-1800s produced the first accident insurance policies. 

Iowa’s insurance history was outlined in a 2005 lecture at Drake University by Principal Financial Group’s Barry Griswell, who said the first type of insurance here was shipping insurance for goods transported on the Mississippi River.

Next came fire insurance with Iowa’s first fire insurance company being formed after an 1837 blaze that destroyed Iowa’s territorial capitol in Burlington. 

Life insurance got its start in this country during the 1840s but really took off following the carnage of the Civil War.

Des Moines businessman Frederick M. Hubbell was among the first Iowans to see the opportunity, creating Equitable of Iowa in 1867 to sell life insurance. Bankers Life, which would become Principal Financial Group, followed a decade later, initially selling life insurance to bankers.

A series of events during the 1870s foreshadowed Iowa’s modern insurance industry.

One was the Panic of 1873, when bank failures created a nationwide economic downturn that fueled farmers’ growing distrust of banks and other Eastern institutions.

At the same time, the populist Grange movement was gaining strength in rural areas with support from German immigrant farmers who had learned in their homeland how to organize mutual protection associations.

During the final decades of the 1800s the number of mutual insurers in rural Iowa mushroomed, with the earliest associations focusing on fire but soon expanding to include lightning, tornadoes and other weather damage.

Iowans’ distrust of large financial institutions did two things. It resulted in the founding of many small insurance companies, and it produced strict regulation, which would later lead to Iowa becoming a clearinghouse for insurance regulation and a center of insurance activity.

By 1900, Iowa farmers had organized more than 140 mutual insurance companies, with at least one association operating in each of the state’s 99 counties. In the years that followed, associations began to merge and specialize as risk became a quantifiable science.

Iowa’s first reinsurance company, Grinnell Mutual, was launched in 1910 and continues to serve 250 mutual insurers throughout the nation’s farm belt.