The History of Auto Insurance

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The History of Auto Insurance

The concept of auto insurance coverage is long-standing, tracing its roots thousands of years before the first automobile was ever conceived.

Automobile insurance has changed American society greatly in the past century, ever since the very first insurance policy was written up in the nineteenth century. The concept of auto insurance, however, gets its roots far before the automobile was ever invented.

Where Auto Insurance Came From

The concept of auto insurance is fundamentally a tort system. Tort law falls under civil law and specifically involves personal injury laws.

Etymologically, “tort” means a “wrong,” from the Latin tortus, “twisted,” to the French tort, “wrong.” All torts are wrongs involving damage to a protected interest. In other words, a tort occurs when someone either deliberately or through negligence harms another person or group.

This concept can be traced back to the ancient Chinese. The owners of cargo ships would meet with investors before setting sail to the new colonies across the Atlantic Ocean. The owners of these ships would occasionally lose a ship either through sinking or piracy. The group of investors took the gamble of insuring the ship and cargo would arrive safely in exchange for a premium consideration.

In the Babylonian kingdom circa 2000 B.C., the Code of Hammurabi, one of the first written codes of law in history, provided the first written record of insurance in the form of “bottomry.” In the contract of “bottomry,” lenders advanced the ship-owning merchant the full cost of the cargo. If the voyage was a success, the ship owner repaid the bank at a certain interest rate which included a premium to reflect the risk of loss. If the ship was lost, the lender forgave the loan.

Traders whose cargoes were advanced by merchants were thus protected from debt in case the cargo was lost. This practice spread throughout the Mediterranean region until finally the Roman edict Lex Aquilia (circa 300 B.C.) provided a general law of compensation for direct and indirect injuries. This in turn was continued by the Roman Emperor Justinian in the sixth century A.D.

The Oldest Insurance Policy and the General Average

Greek, Indian, and Phoenician traders used an ancient insurance called the “General Average.” According to a 700 B.C. written reference, the General Average insurance involved a cooperative effort whereby if cargo was compromised, the loss must be made good by all interests involved. In Europe during the eleventh and twelfth centuries, Danish navigators began forming guilds whose role was to protect its members against loss and damage at sea.

The oldest marine policy known to have been issued was on a vessel named Santa Clara, and the oldest policy document in existence was dated April 24, 1384 covering four bales of textiles on a journey from Pisa to Savona.

The basic concepts of marine insurance were brought by the Lombards to northern Europe and England in the 13th Century. By the 17th Century, London, with the emergence of the Lloyd’s of London Association, had developed into a leading center for marine insurance.

The Invention of the Automobile and Auto Insurance in America

The invention of the automobile in the late nineteenth century created a need to protect motorists from the potentially enormous financial loss from operating a car. Acting on the assumption that driving an automobile is a privilege and not a right, as well as the knowledge that operating an automobile is potentially devastating to the economy, policy makers required motorists to purchase auto insurance coverage to protect innocent third parties as well as the at-fault motorists from liability.

In the United States, though car insurance obligations vary from state to state, every state requires mandatory car insurance. The resulting tension between financial responsibility and compulsory liability statutes highlights the struggle in the American psyche between freedom to do what one pleases and the need to regulate some things for the good of the whole.

Automobile insurance companies have become a leviathan entity enmeshed with enormous political implications. The history of automobile insurance gestures toward a complex interplay of financial responsibility laws, compulsory insurance laws, and uninsured motorist coverage based largely on the principles of tort law first set forth by the ancient Chinese.