Some people may think that auto insurance is a relatively new way for making car owners pay extra for their cars. Sure, with the constantly increasing insurance rates it’s easy to imagine that auto insurance is actually a concealed tax on vehicles. However, if you take a minute to learn the history of vehicle insurance it turns out that auto insurance is in fact as old as automobiles, while the principles of insurance itself can be traced back to Ancient China and Babylon well before the concept of the “horseless carriage” could ever be conceived
The concept of insurance is based on tort law, which is several thousand years old and was widely applied by Ancient Chinese trade ships. Whenever a ship was sent outside the Chinese territory of influence the investors would assume responsibility if the goods were lost due to storms or piracy.
A similar concept was documented in the Code of Hammurabi, the earliest written law codes known in history, where the investor was deemed to advance the full value of the cargo before the ship set to sail in order to cover the risk of loss. If the shipment was successful the investor received their money back with a little charge by the intermediary.
The same principles were used by Ancient Greek, Indian and consequently Roman merchants before the torch was given to European sailors of the Middle Age. It was around the 14th century when the first actual insurance policies were written down and served as a documental proof of the practice that was already used for thousands of years.
Getting back to automobiles, the first auto insurance policies were issued around 1895, decades after the first cars have hit the streets. By that time the number of accidents has reached a critical level and it became apparent that there’s a need in tort adjustment that would address the damage caused by these new vehicles. The first auto insurance policy to be issued in the United States was purchased by Dr. Truman J. Martin in Connecticut in 1898. But it took over 25 years for auto insurance to become mandatory as it is today.
Connecticut and Massachusetts were the first two states to make auto insurance mandatory due to the overall amount of damage caused by car owners by that time. It became clear that the huge success of the Ford T model is only the start and even more cars will hit the roads in the coming years.
At the same time, settling all disputes through court action was impossible because it would take too long and would be too expensive for all the parties involved. So, mandatory auto insurance became the only viable option for settling accident-related disputes. However, it took another twenty years for authorities in other states to realize that compulsory auto insurance is a necessity. New York was the first state after Connecticut to make auto insurance compulsory and in the following several years nearly all states have joined the cause.
And as autos evolved so did auto insurance, featuring new coverage types and attracting clients through more flexible offers and personalized pricing. So as much as you would hate to admit it, auto insurance is an integral part of the automobile industry in general and it’s impossible to have one without the other. The history clearly shows that it was always this way not the other.