Who invented car insurance?

Many South Africans know about car insurance, especially car owners. Why is that the case? Who can afford to pay privately for all the costs of a car accident? Not many can. Car insurance provides financial protection to car owners. Most of us are so familiar with the term car insurance, that we are inclined to think that it has always been there. But, have we ever thought who started car insurance?

The idea of insurance is an ancient one

The whole idea of insurance dates back to the beginning of time. Merchants in ancient Babylonia had to take out ‘cover’ when they took out loans.1

Benjamin Franklin, one of the creators of insurance in the United States

It comes as no surprise that one of the world’s greatest inventors, Benjamin Franklin, was one of the forefathers of insurance in the United States. In 1751, he established the Philadelphia Contributionship, a company that, for the first time, offered fire insurance to the American colonies.2 Members of the company agreed to make regular contributions into a fund, which could provide cover for loss of property through fire. During its first year of existence, the company issued 143 policies, which had a lifespan of 7 years. During those years, there were no losses of insured property due to fire. Franklin also initiated crop insurance and life insurance, as well as insurance covering widows and orphans.

The beginning of car insurance in the US

The first person ever in the US to have bought car insurance was Gilbert J. Loomis, in 1897.3 The policy, based on a horse and carriage policy,3 was issued in Dayton, Ohio, and covered Loomis for any property that could be damaged by his car. He was also covered for any injuries or death that may result while driving his car. From these early, humble beginnings, car insurance slowly evolved into a more comprehensive type of car insurance. Car, fire and theft insurance were first offered to the US public in 1902. This was the first non-liability policy that was specifically written for cars.3 Ten years later, companies started combining property, liability, and fire cover into one policy.

What legal complexities came with more cars on the roads?

As more cars started to appear on roads, so did the number of accidents increase. With all the accidents happening, all sorts of legal aspects came into being, such as whose fault it was and whose it was not, and so on. Even when blame could finally be apportioned to a particular driver, there was no guarantee that that driver had the financial means to settle all the costs of the accident.

US financial responsibility laws provided an answer

The legal implications grew worse and worse in the US, until eventually, the State of Connecticut promulgated a financial responsibility law in 1925.3 This law required that car owners had to prove they had the financial capability to settle all accident-related costs. The simplest way to show financial responsibility was to buy liability car insurance. The State of Massachusetts followed suit by providing similar financial responsibility laws. However, these laws differed, because drivers had to prove financial responsibility before their cars could be registered. This was a clear example of a compulsory insurance law.

Car insurance in the United Kingdom and Europe

Cars began to be used considerably in urban areas of European cities only after World War I.4 Despite the fact that cars were already quite speedy and dangerous, there were no policies in place to cover all parties concerned. The Road Traffic Act of 1930 in the UK resulted in the first compulsory car insurance scheme. This was to ensure that third parties were covered for injury or death caused by owners or drivers of cars. Similar laws were promulgated in Germany in 1939.

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Sources:

1. Wikipedia – History of Insurance
2. Bank Insurance
3. DMV
4. Wikipedia – Vehicle Insurance