How Automobile Insurance Started In The U.S.

2019-04-16T16:36:32+00:00December 10, 2018|

Today, automobile insurance is simply a given for most people. You buy a car, you get it insured. But have you ever stopped to think about how automobile insurance began?

Insurance in its earliest form dates back to 4000-3000 BC. The Babylonian merchants used what were called bottomry contracts, which were essentially loans that covered a shipment if it were lost at sea. Interest was charged on each loan, which covered the cost of the loans that remained unpaid due to lost shipments.

Marine insurance contracts were practiced later in Ancient Greece, Rome and India and continued to grow throughout the Mediterranean and Europe as more investors and merchants began forming guilds and pooling their money to provide marine insurance contracts. Lloyds of London became the first insurance company in the early 1700’s, offering marine insurance policies to ship owners.

The first American insurance company was a fire insurance company in Philadelphia that was setup by non-other than Benjamin Franklin. One of the early advocates of insurance, Franklin and his Union Fire Company started discussions about the formation of an insurance company with other fire-fighting groups in 1751, and the following year, the Philadelphia Contributionship was formed, with some seventy members making equal contributions that would be used to cover any losses from a property fire.

Franklin also supported the idea of other types of insurance such as life, annuities and crop insurance. The first life insurance company was formed in 1759 by the Presbyterian Ministers’ Fund, after which the life insurance market grew quickly, although many companies failed due to poor management and speculative investment, or as the result of large disasters such as the 1871 Great Chicago Fire. According to statistics from Britannica, 33 life insurance companies went under between 1870 and 1872, and a further 48 over the following five years.

Travel insurance was also born during the same era with the formation of The Travelers Insurance Company in 1865, which offered travel insurance covering personal injury and death for customers traveling by train or boat.

Then, along came the automobile. Although steam and electric cars were already developed, it wasn’t until the first gasoline-powered automobile was introduced to the United States in 1893 that things really began to change. Built by Charles and Frank Duryea, the brothers went on to win the first automobile race held in Chicago in 1895. The following year they built thirteen more cars, making them the first company to manufacture and sell multiple copies of a single vehicle.

As car manufacturing continued to grow, there were more and more accidents due to poor road conditions, a lack of road rules or signage, and mishaps between automobiles and horse-drawn carriages. This of course led to disputes over property damage and injuries, and the need for automobile insurance was born.

The Travelers Insurance Company was the first to respond to this need, issuing the first third-party automobile policy in 1897 to Gilbert J. Loomis, a mechanic who later went on to form a car manufacturing company, although this first insurance policy was actually a type of horse and carriage policy. A year later, Travelers began writing true car insurance policies separate from the horse and carriage contracts, issuing the first to Dr. Truman Martin of Buffalo, New York. According to the U.S. Census Bureau, the policy cost him $12.25 and provided $5,000 in coverage.

The automobile insurance industry grew from these humble beginnings, going on to add comprehensive and fire and theft insurance policies that are common today. This growth was driven to a large extent by state lawmakers. Massachusetts led the way in 1927, introducing a law making third-party auto insurance compulsory, and eventually, liability car insurance became mandatory across the country.

Today of course, insurance is available for all types of vehicles for both personal and commercial use. We may not be dealing with horse and carriages anymore, and our road safety has certainly improved tremendously, but accidents still happen every day on U.S. roads. Thankfully though, researching and buying insurance has never been easier with insurers offering online quotes along with many of their insurance services.

Reference Articles: