It was one of the founding fathers, Benjamin Franklin, who formed the first insurance company in 1751, called Philadelphia Contributionship, and it was home/fire insurance. According to PBS reports, 143 policies were issued by the company in the first year, and none of the insured property caught fire for seven years afterwards. In fact, Philadelphia used the same scheme that all insurance companies use today; the members of the company paid an amount of money that would be used to restore financial loss due to fire-related causes. Such payment is popularly known today as insurance premium. Benjamin Franklin played a significant role in developing insurance indeed, but he was not the first to introduce auto insurance. As a matter of fact, the first car insurer’s venture began a little earlier than Benjamin Franklin’s time.
The First Known Automotive Insurance in America
People now see car insurance as an inevitable part of everyday lives simply because car is the most-popular means of transportation in the country. Insurer provides essential financial protection for every vehicle owner in the event of an accident that causes property damages, casualties, medical conditions, and all possible financial losses. In America, Detroit is nowadays well-known for its automobile industries. During the late nineteenth to early twentieth century, Ohio was home for innovators of this new type of transportation. It is worth mentioning that the world’s first car insurance coverage policy was issued in Dayton, Ohio in 1987. According to Ohio Historical Society, Gilbert J. Loomis was the first person to purchase car auto liability insurance. The policy provided protection for Loomis in terms of financial loss (or financial responsibility) in case his car damaged another person’s properties, killed, or injured someone. These policies are more or less similar to those used widely by modern car insurance companies throughout America nowadays; at least, the policies issued to Loomis set examples of what kind of financial protection that car insurance policy should at least provide for the owner.
The car insurance industry slowly began to gain its popularity since then, and it indeed developed into more comprehensive as well. In 1902, the first comprehensive insurance policy provided coverage for fire and theft, so it was no longer for accident-related causes only, according to International Risk Management Institute. In 1912, insurance coverage that combined multiple perils was starting to develop as insurers tried to include fire, property, and liability coverage for automobile into one single policy. Auto insurance coverage policies evolved greatly, but the basic principles remain the same. Benjamin Franklin did not probably think about cars when he started Philadelphia Contribution-ship, but he played a crucial role in developing the system and popularize the idea that insurance does bring peace of mind to the policyholder.
With the rise of the automobile industry in America, insurance also began its expansion. There are many factors involved in the success story of car manufacturing such as expansion of U.S. economy, infrastructure and road development, and the rise of “car culture” itself in the country. Of course, the rapid growth of vehicle production and number of car owners in the country inevitably resulted in more road cars and accidents.
In 1930, more than 100 people were killed in accidents per day. It is not a surprising fact since drivers at that time were not obliged to undergo strict driver licensing, and probably most of them were never registered to any driver test. This was, in fact, an expected consequence due to the absence of driver test or driving schools. In 1920s, due to various political reactions, the government invested more funds to build better roads and traffic control system as well as improve vehicle licensing regulation and implement strict driver test. Massachusetts was a step ahead of most states by establishing driver licensing in 1903; however, the state only started to implement driver licensing in 1952.
Massachusetts and Connecticut were ahead again with the implementation of compulsory insurance and financial responsibility laws. To be more precise, Connecticut’s law required driver or vehicle owner to produce valid proof of financial responsibility of at least $10,000 in case one is involved in an accident that resulted in more than $100 worth of damages, injury, medical bills, or when the accident caused the death. Back then, drivers were obliged to what was stated by the law after their first-time accident.
In 1950s, car insurance began to spread widely across the nation in almost all states. Massachusetts was the only states in the country that required drivers to purchase car insurance policy before vehicle registration. In 1956, New York adopted the same regulation; North Carolina took the same step in the following year. During 1960s and 1970s, almost all states developed the same type of regulation although each state has different specific requirements. Considering that the beginning of compulsory insurance law was in 1925, and it was successfully applied throughout the nation by 1970s, the development is staggeringly quick.