The History of Auto Insurance

The history of auto insurance, how do we get from Hammurabi to Your Hyundai?

It’s easy to take insurance for granted. It’s not sexy or exciting, it’s just plain ol’ simple insurance. But reality, and history, informs us that insurance is actually a cornerstone of our economy as well as a foundation our daily personal lives.

Or ancestors knew this as far back as ancient Babylon, where we see the first “insurance policy” in the Hammurabi Code. Conditions were actually carved into stone that codified risk mitigation in the cases of personal hardship, providing forgiveness of debt in cases of death or disability.

And in the Gilded Age, after serving as apprentice, if one were to form their own practice the larger, wealthier guilds, would take royalty payments from smaller guilds and provide financial protection if the smaller, less financially strong guilds were to suffer fire to theft losses.

But it was in the 1600’s where the more modern understanding of “underwriting” a risk was created. It was in the “un-official” stock exchange of the British Empire, in a coffee house owned by Edward Lloyd, where merchants would post the manifests of ships bound for the new world, for a premium investors could sign on the manifest for the amount of cargo they would be willing to become responsible. There were normally several investors who would sign the manifest, as a means to spread the risk, and this the concept of “underwriting” was born.

The first policy for auto insurance in the United States

As economies change, as new technologies are introduced, it creates a need for insurance. In fact, before Michigan became the hub of auto insurance manufacturing, some of the early vehicles were created out of Ohio, and this gave birth to an entirely new need for insurance … auto insurance.

In 1967, a gentleman named Gilbert J. Loomis purchased an auto insurance policy for $1,000 from Travelers Insurance Company, providing liability protection should he cause property damage to a third-party, or worse, caused bodily injury or death to another person.

I’m sure, just like in the coffee house in London, the underwriters at Travelers Insurance had to consider carefully the risk and write out a set of terms and conditions before they would be willing to assume the liabilities for Mr. Loomis’ and his fancy new car.

Oh, how time has changed

Things are much different now, in most lines of business (eg. Auto Insurance or Home Insurance) there are formal practices for setting rates, and the market is heavily regulated due to its importance to society.

The process for buying insurance, for many lines of business (eg. Auto Insurance and Home Insurance), has also become very sophisticated. Since 1997, when Progressive first began selling auto insurance through the internet, we are all witness to a very rapid change in to the sales process for … well just about everything.

But circling back to my fist sentence in this post, “it’s easy to take insurance for granted.” And too often that is exactly what we do. We are focused on the process (is it easy) and the price (is it affordable – or cheap), and we fail to consider, with any real detailed understanding, what is written into the agreement – the when, how, or how much protection is provided.

You see, insurance is no longer just a community banded together or a set of Guilds looking after each other’s interest. Insurance is big business, with each looking to gain greater share of the market with greater profits.

This isn’t bad, it’s very American.

Conclusion

Write now we are writing a new chapter in our consumer history, we are empowered consumers. We read reviews, check prices, ask our social networks for referrals. For most things that is just fine, but with your insurance … this includes auto insurance … we need to understand that these are complicated contracts, it might be OK to ask a professional.

It’s a much more complex insurance policy today, it’s better to be safe, get your questions answered, and understand your protection. Saving a few minutes and a few dollars can get pretty pricey if you make the wrong choice.