The History of Auto Insurance

The auto insurance industry undergoes frequent changes year after year as society changes; however, in recent times  there have been even more changes than ever.

By the beginning of 2010, every state but New Hampshire and Wisconsin had changed their law to make liability coverage mandatory. Also, members of the federal government were trying to take steps to stamp out texting and driving, as well as create national standards for teen drivers.

With changes occurring frequently, it makes you wonder how many changes have taken place since the beginning of auto insurance – and when exactly the beginning is. The history of car insurance in the United States is a long one, so we will look at it by creating a timeline of the major adjustments that have occurred over the course of its history.

3000 B.C. – Auto Insurance Came from Ancient Tort Law

Okay, so we know that there were no automobiles or auto insurance in 3000 B.C.; however, it’s important to note that the concept of auto insurance comes from the ancient Chinese whose merchants needed protection for their boats. Based on this need, tort law was created.

Torts are wrongs involving damage to a protected interest and occur when a person deliberately or through negligence harms another person or group. The ancient Chinese tort laws specifically involved personal injury laws and still are valid today. The concept of auto insurance was born out of this idea and its history as we know it unofficially starts here.

1897 – First Auto Insurance Policy (Liability) Sold

Fast forward a few thousand years and we find the first auto insurance policy for the United States, which was issued in Dayton, Ohio in 1897. The state played an important role in the early auto industry and was the site of many firsts, including the beginning of car insurance history.

The first policy was sold to Gilbert J. Loomis as a liability insurance policy from Travelers Insurance Company for $1,000. In the policy, Loomis was protected if his car killed or injured someone or damaged their property.

1907 – First Auto Insurance Company Established

In 1907, A.T. Vigernon opened a small car insurance company in Providence, Rhode Island because he believed that the automobile would be the wave of the future. Naming it Automobile Mutual Insurance Company of America (now known as Amica), it is the nation’s oldest mutual insurer of automobiles and is still in business today with 39 offices across the country.

1927 – Mandatory Car Insurance Law Passed in Massachusetts

Building on the foundation laid out by the first auto insurance policy and company – in addition to a response to the massive growth of the auto industry and increasing accidents on the road – the first mandatory car insurance law went into effect in Massachusetts in 1927.

Under this law, known as the compulsory liability insurance statute, all parties were financially responsible for their vehicles. This statute would hold up for decades as most states passed similar laws by the 1940s.

1937 – Progressive Insurance and Non-Standard Coverage

Progressive Insurance got its start in 1937 and was known for further expanding the auto insurance industry. Rather than offering the standard policy that other companies offered, it tried to fill in a gap by writing non-standard auto insurance, which covered drivers that other companies refused to insure. Later, the company was also known as the first to offer a car insurance quotes comparison.

1966 – Dodd’s Attempt at a Federal Auto Insurance Bill

In 1966, Senator Thomas Dodd (D-Conn.) made an attempt to create a federal guaranty system that would protect policy holders and claimants in a similar way that bank depositors were protected by the FDIC.

His idea came after analyzing the insolvencies of more than 60 substandard auto insurance companies. However, it was promptly shot down after the NAIC criticized his proposal as being an intrusion of state regulatory authority.

1970s – Emergence of No-Fault Auto Insurance

While no-fault auto insurance got its start in 1930, it began to emerge in the 1970s as 24 states saw it fit to veer from the traditional tort-based idea of liability insurance where each person must have some level of financial responsibility. Instead, no-fault auto insurance required that individuals injured in auto accidents be limited in their ability to seek recovery from other drivers in an accident.

Now, only 12 states operate under this law or offer it as an option while the rest still function fully under the tort-based option.

1988 – California’s Prop 103

In California, Proposition 103 passed, which required that every insurer reduce its rates to at least 20 percent less than the rates that were in effect a year prior in 1987 among other adjustments to California’s auto insurance law. Prop 103 stands as the foundation of Prop 17, which is currently being considered on California’s June ballot as the controversial Continuous Coverage Auto Insurance Discount Act.

1995-Present – Auto Insurance Offered Online, Credit History Becomes an Issue, Texting and Driving Rules Emerge

In 1995, Progressive Auto Insurance was the first major auto insurance group to launch a website, which was known as Auto-Insurance.com. Even more, it was the first to sell coverage online when it became Progressive.com two years later.

Around the same time, the issue of using credit history when determining auto insurance rates became an issue because some felt that it was more difficult for those with subpar credit to obtain reasonable car insurance quotes. This continues to be an issue today.

At the turn of the century, mobile devices became more common and as a result, more people began driving while talking on the phone and texting. In the past year, studies have emerged showing the dangers of texting and driving. As a result, the decision to ban this act has become a major focal point in 2010 state laws, as well as laws developing nationwide.

There’s no doubt that many major changes have occurred over the past century in the auto insurance industry. While it’s difficult to fill in every detail that occurred around the nation, it’s good to be able to answer some car insurance questions about how the industry got its start and made its way to present day.