A condensed history of personal auto insurance
The first auto insurance policy was sold a little over a decade after Karl Benz applied for the first patent for a gas-powered vehicle.
Editor’s note: This column is part of PropertyCasualty360’s Foundations of P&C Insurance series, which aims to bring new insurance professionals up to speed, while keeping industry veterans sharp. On Fridays, PC360 will offer up fresh content covering the nitty-gritty details of P&C insurance, tips for professional development, articles looking at the industry’s more niche concepts, and the history of certain lines and programs.
While ocean marine birthed modern P&C insurance, the road now rules the sector as auto coverage is one of the most common forms of insurance today.
Private passenger auto saw direct premiums written (DPW) exceed $260 billion in 2022, making it the largest P&C line, according to data from the National Association of Insurance Commissioners. In comparison, commercial auto had around $53 billion in DPW this past year.
The first auto insurance policy was sold just a little over a decade after Karl Benz applied for the first patent for a gas-powered vehicle. Historians appear split on when the first auto insurance policy was sold, with some claiming the sale occurred in 1897 and others claiming it was 1898. One thing historians do seem to agree on is that Travelers Insurance, which has been around since 1864, sold the policy.
According to a spokesperson with Travelers, the first auto policy was issued in 1897. Corroborating this further, the Ohio Historical Society reported that in 1897 Gilbert J. Loomis was issued a policy that covered him for property damage and injury or death caused by the use of his automobile. Loomis paid $1,000 for the policy.
The policy might have covered Loomis’ steam car, which according to the Virtual Steam Car Museum, was built in 1896 and was pioneering for its time. The steam-powered vehicle was not put into production though. Loomis quickly switched to gas-powered cars, building around 50 that were released starting in 1901. Advertisements for early vehicles, which were named The Loomis and featured a five-horsepower engine, boasted that the vehicle was only for drivers who had the “facility to act as an agent for the highest powered carriage for its weight.” Loomis later went on to make carburetors and mufflers.
Dr. Truman Martin was another early adopter of auto insurance, buying a policy from Travelers in February 1898. Dr. Martin got a much better deal on his coverage, paying just $12.25 for $5,000 in coverage, according to Policygenius.
Coverage becomes mandatory
Both Loomis and Dr. Martin sought auto coverage of their own volition, and no state required auto insurance until Massachusetts passed a law mandating coverage in 1925. The Massachusetts law did not go into effect until 1927, according to archival documents from the State Library of Massachusetts.
Massachusetts was also the first state to establish a true no-fault auto insurance system.
In addition to the Massachusetts legislation, 1925 also saw legislators in neighboring Connecticut pass a law that required drivers to prove they were financially sound enough to pay for damages caused by their vehicle. The law required any driver involved in an accident that caused death, injury or resulted in more than $100 of property damage to prove financial responsibility to satisfy claims of at least $10,000 in the case of death or injury and $1,000 to cover property damage, according to documents on file with the Connecticut State Library.
After 1925, no state acted to mandate auto insurance. That changed in 1957, when New York and North Carolina began requiring coverage, and by the 1970s nearly every state had enacted similar legislation.
As it stands, New Hampshire and Virginia are the only states that don’t “mandate” coverage.
In New Hampshire, drivers must still prove they can meet the state’s “motor vehicle financial responsibility requirements in the event of an ‘at-fault’ accident,” according to the state’s insurance department.
Virginia drivers can buy a traditional auto policy or pay a $500 uninsured motor vehicle fee. Uninsured drivers in Virginia are responsible for any damages they cause, according to the Virginia Department of Motor Vehicles. Uninsured motorist fee money goes into the state’s Uninsured Motorist Fund, which is used to offset the cost of uninsured motorist coverage charged by carriers.
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