The History Of Auto Insurance

Almost everyone has an insurance policy on his or her vehicle, home, or any number of things, yet most probably do not know how the practice of insuring property came about. The original idea of property insurance actually goes back to the 2nd and 3rd millennia BC, when Babylonian and Chinese traders would separate their cargo among several  ships, so in case one ship would sink, their whole shipment would not be lost. This was a  very primitive way of insuring goods as they were carried by ships, but with this being the only way to transport things over a long distance at the time, their ingenuity was ahead of their time. Mediterranean sailing merchants paid the first known “premiums”. These merchants often took out loans to pay for their shipments; they would pay the lender an additional sum of money to insure they received their shipments. If for some reason the shipment was lost or stolen, the lender would cancel the loan in return for the additional funds paid. It took almost a thousand years to improve on this idea. If goods were shipped together for more than one merchant, they would all pay a “premium”. If any of all of the goods or lost, this premium would be distributed to the merchant or merchants that lost their shipment to cover its value. Insurance as we know it today came about due to the Great Fire of London in 1666 when over 13,000 homes and buildings were destroyed. After the disaster, Nicholas Barbon had an idea to open a business that did nothing but provide insurance against fire for brick and frame buildings, hence England’s first fire insurance company was established, “The Fire Office”.

The first auto insurance policy

Now that you know why property insurance was initially established, we can discuss the history of automobile insurance. The first auto insurance policy was issued in 1897 in Dayton, Ohio. Gilbert J. Loomis purchased a liability policy for about $1,000 for his vehicle from Traveler’s Insurance Company, who is still in business today. In today’s money, the equivalent of what Mr. Loomis paid then would be around $26,000. Now keep in mind, anyone could drive an automobile at the time if fortunate enough to be able to afford one. There was nothing to place to determine if someone was even capable of driving or not, so essentially it was a free for all. As the Ford Model T was just an idea at the time, and would not roll onto the road until 1914, chances are Mr. Loomis was insuring one of the first automobiles produced by Karl Benz, imported from Germany, which at the time would justify the incredibly high price he paid to insure it. The liability policy of 1897 covered the same thing as it does today; it protected Loomis in case his vehicle injured or killed someone or caused damage to any property other than his own. At the time, there were a very limited number of automobiles available, very few people that could afford them, and few, if any roads that were designed for car travel. There were no licensing requirements for automobiles or drivers, which meant there was no one training or testing people on how well they could drive an automobile. This also meant that anyone, no matter what age or capacity, could drive a car. Luckily, the fact that not many automobiles were available that people could afford, kept more people from becoming victims of the new “horseless carriage”.

The history of the driver’s license – holding drivers accountable.

The original intent of the driver’s license was to give someone permission to drive a car on a public road, it had nothing to do with the drivers’ abilities to safely drive a car. Karl Benz, the official father of the automobile, was the first to be issued a driver’s license in Germany in 1888. At that time, it was not to certify that he had the skills to drive an automobile safely as it is today, it was actually only a license giving him permission to operate his car on public roads. The first automobiles he produced were loud and noxious, leading to complaints from citizens. Only after requesting permission to drive his car on public roads to appease the citizens, did Benz received the license. Up until the early 1900s, this was the only reason a driver’s license was issued, as the first automobiles were nothing like the emission friendly vehicles we have today. If an accident occurred, the one who was injured or suffered property damage sued the one responsible, but there was no accountability. The chances of collecting for anything were virtually zero. Only after people realized how truly dangerous automobiles were and deaths started to soar, did North American officials listen to the worries of the public. In August of 1910, the first law regarding motor vehicle licensing went into effect in the state of New York. However, this law only applied to personal chauffeurs, so the problem of accidents and fatalities were not handled as well as they thought it would be. There was still no accountability for anyone behind the wheel of a car other than a chauffeur if an accident occurred and there were injuries or damage. In 1908, Rhode Island became the first state to check a driver’s ability to drive before they issued a driver’s license. This was the first time in the United States that a person had to prove they knew how to drive a vehicle, and if they were involved in an accident or injury, they would be held responsible. The state of New Jersey became the first state in the United States in 1913 to require any and all drivers to pass a driving test before they were issued a driver’s license. As of 1959, when South Dakota became the last state to require any kind of examination before issuing a driver’s license, every state in the US has a driver’s license law. Every person now had to be able to prove they were capable of driving safely and obeying traffic laws before they were issued a driver’s license. 1925 saw the beginning of automobile insurance policies as we know them today and since then every state has adopted some type of requirement for minimum car insurance. There was no longer a worry about filing a civil action if you were the victim of any type of motor vehicle accident.

More drivers, more automobiles, and more insurance policies

By 1959, US auto production was booming and was quickly overtaking the production numbers in all the other car-producing nations. Automobiles became more stylish, were covered in chrome and available with options and in colors people once only dreamed of. They also become more affordable, making them commonplace in most driveways in America. The depression was over and the economy was flourishing, people had jobs and could afford automobiles, and some of the ones produced at the time were some of the most beautiful and over the top automobiles ever built. Not only did automakers like Ford and GM revel in healthy profits, but also they both produced their 50 millionth vehicle during the 1950’s. Prior to 1956, when New York passed a law requiring every driver with a license to have auto insurance, Massachusetts was the only state that had any type of law regarding the maintenance of car insurance. Soon after this, many states joined in this requirement by enacting laws regarding insurance as well. North Carolina enacted a law requiring compulsory car insurance in 1957, and by the early 1970s, every state required licensed drivers to have car insurance before they could register their vehicle. Prior to 1925 when the need for insurance specifically for automobiles was determined, accidents were handled as any other tort for property damage, which were usually very unclear on personal responsibility. Once information started to be collected and studied on automobile accidents, it was realized that there was still no way of assuring that even though one of the parties was decided to be at fault, if the injured party were able to collect for the damage or injury. The financial responsibility law enacted in Connecticut in 1925 was the first of its kind. It required the owner of any vehicle that was in an accident that caused damage, whether to property or another person, of $100 or more to prove that they had insurance to cover at least $10,000 of damage or injury, even death.  There was still a problem with this, as in they only had to prove they had the means to cover $10,000 worth of damage or injury after their first accident.  Massachusetts was the first in the same year to require liability insurance, not financial responsibility, in order to register a vehicle. Finally, after almost 40 years of automobile mayhem, there was some semblance of order, and standards set for the insurance we are familiar with today.

So many kinds of insurance, what do they mean?

Today, not having a driver’s license or insurance can lead to large fines, legal trouble, as well as the risk of losing everything you have if you are involved in a serious or fatal accident. Automobile insurance policies stretch far beyond just liability coverage, which is required in every state. If it has four wheels and an engine, you can insure it for almost anything that may happen to it or anything you may cause damage or destruction to with it. It does not matter if you drive a Yugo or a Lamborghini, a Smart car or a 1200hp drag car, or your grandfather’s 1955 Mercury, insurance is the best investment you can make in whatever you drive. There are many types of policies available; ranging from basic coverage on your daily driver to collector car insurance to drag racing insurance that covers your car, trailer and anything else that is included. The type and amount of coverage you need depends on your vehicle, if you own it or are paying on it, your driving record and your budget.

On the least expensive end of the spectrum is liability insurance. It is only for vehicles that are paid off, and it only covers damage that you cause to another vehicle, property or injuries or death of another person. This can become expensive if you are involved in a major or fatal accident, as you will be responsible for any damage or expenses over and above what the policy covers. It also will not cover your vehicle or any injuries to you. Next up the list is collision coverage.  Collision coverage not only covers any vehicle, property or person you may cause harm or damage  to, but it also covers your injuries and any damage to your vehicle if you are found at fault for the accident. If the other person involved in the accident is found at fault, but do not have enough coverage, you can also add underinsured or uninsured motorist coverage to protect yourself. The third and completely optional coverage is comprehensive. This can only be purchased along with collision coverage. It covers any damage to your vehicle not caused by an accident. This includes storm damage, theft, fire damage or vandalism. It also covers any special or modified parts on your vehicle that would not normally be replaced under normal collision coverage. With almost every type of coverage, you can take advantage of towing or rental car coverage as well, in case your vehicle needs to be towed, or you need a rental car while it is being repaired. Obviously, a big factor in how much coverage you decide on is cost, which varies for almost every person depending on his or her driving record, age, marital status, credit rating and even the city you live in.

Now that you know. . .

Now that you are a walking book of knowledge on driver’s licenses and automobile insurance, you can use that knowledge to research insurance and find a policy that is the best for you, no matter what you drive or what your budget is.  An informed consumer can mean the difference between spending too much on things you do not need, and not spending enough and face financial crisis in the future. The next time you are out driving, imagine what it would be like if driver’s licenses and insurance were never thought of, then give a great big thanks to Karl Benz for the automobile and everyone involved in making driving safer for everyone.