How Auto Insurance Has Changed Throughout History

Benz-Velo (from Wikipedia)

Auto insurance has had a rapid evolution since the first conception of liability coverage. Insurance is defined as the equitable transfer of liability or risk of loss from one entity to another. The insurer is willing to take the risk of the cost of potential damage for a fee. As far as the risk of liability goes, it’s basically a gamble.

We might imagine a prehistoric time when an early pessimist had the desire to shift the liability of their potential losses, due to a natural or man-made disaster, onto someone else in exchange for an immediate reward. And as humans began to invent more proficient ways to survive the elements of nature, perhaps the early optimist came along believing how low the odds were of a natural or man-made disaster, and thinking such an arrangement worked in their favor. Auto insurance actually begun 6,000 years ago in ancient China, and was used to protect the ship owners from potential maritime losses. Auto insurance since WWII was probably the defining moment it began to really take legislative shape in society.

Nineteenth century

The invention of the automobile in the 19th century created the need of equitable protection against enormous potential damages as a result of operating this unpredictable machinery. It revolutionized society economically, innovatively and culturally, but at the same time created an atmosphere of enormous collateral damage, injury and expensive losses due to accidents or theft. Auto insurance was initially designed based on the concept of maritime insurance. Around 1927, policymakers determined that operating an automobile was a privilege and not a right, so they enacted laws that required drivers must carry coverage to shield innocent third parties from potential injury or damage.

Road Traffic Act

As the automobile industry began to rapidly grow, society became enmeshed in the political dilemma between the freedom of citizens to do what they want and the need of government to regulate things for the good of the societal whole and prevent compulsory liability. Drivers who were not able to financially cover the damages they caused greatly increased, which necessitated legislative intervention. In the 1930’s, the UK was the first to make vehicle insurance mandatory. With their implementation of the Road Traffic Act, this made it a national requirement that all vehicle owners carry at least some form of liability insurance.

Auto Insurance since WWII

By the late forties, the auto industry continued to boom and automobiles were being mass-produced, which made the demand for auto liability even greater. By WWII, U.S. States began to adopt mandatory laws similar to the Road Traffic Act, which would be the defining legislation in the decades that ensued. Of the U.S. states, Massachusetts was the first to implement mandatory legislation. In the 50’s, New York and North Carolina followed. In the 70’s, numerous other states made auto liability coverage the law.

Types of insurance

No one owns a vehicle today without having at least some knowledge of auto insurance, and they’re undoubtedly familiar with the terms “deductible” and “premium.” But there are different aspects of auto insurance coverage that are not all mandatory and can be quite confusing. The different types of insurance coverage consists of:

  • Liability
  • Collision and Comprehensive
  • Personal Injury
  • Medical
  • Uninsured motorist

Penalties for driving without insurance can be severe, yet laws as to which type of coverage is mandatory and which is optional can vary in each state and country. Liability, or third-party coverage, is mandatory in most U.S. states and covers all bodily injuries and damages to others. Collision covers damage to the insurer’s vehicle. Comprehension covers unrelated accident damage, such as natural disasters, theft, vandalism, etc. Personal injury covers the injuries incurred to the driver. Medical covers all participants involved, including passengers. Uninsured motorist covers damages incurred by drivers who are not insured.

Cost of insurance

Though auto insurance has changed since WWII, some of the same basic aspects of liability coverage are still followed that were once followed 6,000 years ago. Insurance companies today use several methods to calculate the cost of insurance, which include:

  • Age
  • Vehicle type
  • Driving record
  • Credit history
  • Gender

The auto insurance industry is now the most heavily regulated industry in the market, and because of the sheer auto industry revolution that has continued since the early 19th century up to the present, almost all developed countries outside the U.S. now require some form of liability insurance coverage.

When he’s not reading about the latest developments in car tech, Miles Walker writes about car insurance quotes over at CarinsuranceComparison.Org. His latest article looked at the best Utah car insurance.