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A Crash Course in the History of Auto Insurance

History of car insurance

Auto insurance existed before motor vehicles were created. The history of car insurance extends all the way back to 1751. Since insurance is a normal part of the mundane responsibilities adults have to juggle when managing various assets like a vehicle, most do not consider its history.

Paying yearly or monthly premiums are so common that most do not consider why auto insurance has become mandatory. Originally, insurance served as a financial net for those who own a vehicle to help financially support someone after a death caused by an automobile. 

Today, however, some other benefits of auto insurance are financial reimbursement after an accident, vehicle repair, prevention of a jail sentence, and a way to pay off an auto loan on an unrepairable vehicle.

Who came up with car insurance?

According to the Insurance Institute of Insurance, (III) the basics of auto insurance are generally the same from state to state. Drivers have to buy car insurance that is at least the minimum amounts required by law. They can purchase insurance in higher amounts if they want to, but there are requirement variations. 

However, despite the commonalities and differences, the one thing that remains constant is the fact that Benjamin Franklin was a forefather of insurance. In 1751, Franklin created the Philadelphia Contributionship. Though this entity was not exactly created for car insurance, it was a large stepping stone for the formation of insurance altogether.

The company in the colonies bought into the contributionship and received fire insurance in return. The payments they made would be used to cover any member who experienced some loss because of a fire-related incident. 

Fire stations and firemen were not as technologically equipped as they are today, so paying into this membership seemed necessary during this time. Within the first year of its existence, the Philadelphia Contributionship gave out 143 policies.

They hired surveyors to evaluate homes when a policy was requested and chimney sweeps to clean members’ chimneys. During evaluations, if the surveyor noted that a home was built of wood instead of brick or had trees in front of the home, the applicant’s policy request was denied.

Those who met the insurable standards were approved for the policy and agreed to a policy rate at the time of the house inspections. After the purchaser agreed to the rate, they signed a seven-year renewable policy for their home. 

Despite how opting into this membership seemed necessary, out of the 143 policies, not one insured property caught on fire within the seven years the policies lasted. Beyond the fire insurance, Benjamin Franklin also recommended the creation of insurance for crops, life, orphans, and widows. 

Eventually, his ideas transformed into a nationwide industry that we know today. 

The First Company to Offer Auto Insurance

Shortly before licensing laws were enacted, the first car insurance policy was created by Travelers in 1897. Unlike how driving laws are now, drivers did not have to fret over auto insurance state minimums or many other current requirements, so the first draft of the insurance was not as detailed.

The first written insurance policy served as a model for future insurance policies, with it evolving into a more detailed guideline. Now, over a million policies are drafted each year. Of the 1 million policies created, they are outlined for coverage against volcano accidents, vehicles, life coverage, pet care, and everything else in between.  

Between 1897 and now, the auto insurance industry has grown into a billion-dollar industry. Now, coverage is offered by more than just Travelers. Insurance is readily available, and each insurance provider competes with one another by offering budgeted policies, discounts, and loyal customer rates.

Accident and Health Insurance Before Loomis’ Policy

Before the drafting of the first liability insurance policy, the idea of covering someone that may be injured or killed by a vehicle stemmed from the Franklin Health Assurance Company of Massachusetts, a medical insurance company, in 1850.

This insurance was intended to cover wounds and death caused while traveling and did not cover actual medical care. Aside from paying for injuries sustained while on the move, it reimbursed policyholders for income lost while recovering from their injuries as well

Now there are variations of the 1850 medical insurance available nationwide. This level of coverage can be purchased through travel insurance, injury insurance, auto insurance, etc.

The First Person to Buy Auto Insurance

Detroit, Cleveland, and other places in Ohio were considered as leading areas for automobile development during the late 19th and early 20th century, and an Ohio resident was the first to purchase an auto insurance policy. The policy that was first written by Travelers in 1897 was drafted for Gilbert Loomis, who was a resident of Dayton, Ohio.

Loomis’ policy covered him if his car damaged property, injured an individual, or killed someone. The policy would not be considered as auto liability insurance.

Following Loomis, in 1898, Doctor Truman J. Martin purchased a $5,000 liability policy that cost him $12.25 from the Travelers Insurance Company. He was a resident of Buffalo, New York.

A few years following these policy purchases, Massachusetts passed the first legislation that made auto insurance mandatory for those registering a vehicle in 1925. It was not until around 20 to 30 years later when other states followed suit.

Why Car Insurance Is Important

Car insurance plays many roles in society, like reducing distracted driving, but the basics of any insurance policy are to protect consumers from various forms of losses. Of course, with car insurance, the main protection is from financial losses, property damage, legal fees, medical bills, and loss of income that a car accident can cause.  

With the cost of living spiking through the roof in current times, all these items can round up to millions of dollars that a person can owe if they do not have insurance coverage. 

At the End of The Day

Though Benjamin Franklin or the Travelers Insurance Company did not anticipate insurance being so much of a demanding necessity in 1751 or 1897 as it is now, they knew it was important to protect citizens.

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