The History of Car Insurance in America

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A Brief History

Today, insurance in various forms is so much intertwined with our lives and become such an integral part. When making major financial decisions that we seldom think about its history because we presume that it must have been there for ages. From life to car and health, household insurance etc. We seek affordable coverage to protect ourselves from financial liabilities. Since cars have also become a part of our lives by shedding its luxury tag and treated as one of the essential commodities, we all have become familiar with car insurance that we have to deal with closely.  It is a necessity because it is a legal requirement and offers financial protection to car owners in the event of an accident or damage.  

Car insurers provide the money to repair your vehicle after an accident if you have taken collision coverage. In case of comprehensive coverage, your provider will pay you for the cost of the car after considering depreciation. There is also a provision to seek medical cover for you and your family when injured in an accident. The more premium you pay higher is the liability coverage.

This coverage has now become commonplace has a long history, and we will briefly explore it in this article.

Digging Deeper

The beginning of the concept in America

The concept of insurance reached America from Europe in 1752. Soon it found a great supporter in the famous American named Benjamin Franklin who soon gave shape to it in the form of the organization Philadelphia Contribution for the insurance of Houses from Loss by Fire. It was the first fire insurance company in the US and played a stellar role in building code reform. The organization refused to insure building projects that were deemed potential fire hazards. Soon after, in 1759, the country witnessed the launch of life insurance, followed by health insurance in 1850.

The beginning of auto insurance in America

The late 19th and early 20th centuries witnessed massive automotive development with Cleveland and Ohio at the forefront even though Detroit earned the moniker of Motor City. The advent of automobiles soon gathered high momentum, and by 1899 30 manufacturers were producing 2500 automobiles every year. Along with it came a new kind of risk as people started using cars to travel on roads at high speeds. 

According to the Ohio Historical Society, in 1897 a gentleman named Gilbert J. Loomis was the first person to buy an automotive insurance policy in Dayton, Ohio. From the information available from the archives, it becomes clear that the policy was like what we call a third-party policy or liability insurance that protected Loomis financially in the event his car injured or killed any person or damaged any property. It created a model for car insurance meant to safeguard the motorists as envisaged in the policy taken by Loomis.

A slightly different version about the first car cover policy is available from the US Census Bureau that recognizes Travelers Insurance as the underwriter of the first policy issued for a car in 1898 to Dr. Truman Martin who stayed in Buffalo, New York.

Boomtime for car industries

The car industry flourished rapidly and turned into a boom by the first decade of the 20th century when there were 450 new automobile manufacturers in the country. Henry Ford and William Durant, the duo who founded General Motors were the most prominent names of the times. Going ahead, Henry Ford launched the Model T that revolutionized the US automobile market.

States make car insurance mandatory

As the concept of car coverage started gaining ground, the governments of some states framed laws that made it compulsory for vehicle owners to shoulder the financial responsibility and made it a pre-requisite for registering any vehicle.  Buying liability coverage for drivers was made mandatory in Massachusetts in 1925 and tied to vehicle registration, and Connecticut followed suit the same year. The new law held drivers responsible for collision who had to prove financial responsibility of at least $10,000 in the event of any claim for damages. The state of Connecticut offered the first auto liability policy. According to the Connecticut Public Acts, chapter 183 of 1925, a driver involved in an accident that results in property damage or injury or both valued at over $100 had to demonstrate financial responsibility of $10,000 minimum. 

The driver could demonstrate the responsibility by buying motorist liability policy of the required amount, or when needed, the driver could provide a bond of the necessary amount. The other option was to deposit some negotiable financial instruments like stocks, bonds etc. or deposit cash of the required amount.

If the driver failed to demonstrate the financial responsibility by choosing in any of the manners specified above, then the license would be suspended; however, the injured person had to report the incident to the police or the state administration to make them take cognizance about the offence. This laid the foundation of toady’s car coverage policies. 

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Historical Evidence

For more information, please see…

Rudolph, Richard.  A Tedious, Brief History of Insurance.  The National Alliance Research Academy, 2015.

The featured image in this article, an image by Tumisu, is licensed under the Pixabay License.

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Abdul Alhazred

“But I don’t want to go among mad people," Alice remarked. "Oh, you can’t help that," said the Cat: "we’re all mad here. I’m mad. You’re mad." "How do you know I’m mad?" said Alice. "You must be," said the Cat, "or you wouldn’t have come here.” ― Lewis Carroll, Alice in Wonderland