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Q

When did insurance become mandatory and who exactly thought up the idea of it?


A

The concept of insurance itself is very old. Some say it originated in ancient China around 3000 B.C. Early merchants trading on China's rivers practiced a form of insurance, loss control, by deliberately spreading a given cargo among several vessels and thereby reducing their potential loss.

Later, cargo ship owners would meet with investors before setting sail. The owners of these ships would occasionally lose a ship either by sinking or piracy. The group of investors took the gamble of insuring the ship and cargo would arrive safely in exchange for a premium.

The first auto insurance policy that included liability coverage in the United States was written in 1898 to cover a physician in his new automobile. It was such a new concept, the story goes, that the form used to write the policy was one normally intended to write coverage for a team of horses.

Car insurance is thus a spinoff of both marine insurance and horse insurance. It was developed after policymakers decided that operating a motor vehicle on public property was a privilege and could in fact be a rather dangerous one. It was concluded that motorists should purchase car insurance to protect innocent third parties against bodily injury or property damage to the person's own vehicle.

The U.S. General Accounting Office, No. 86-2, Auto Insurance: State Regulation Affects Cost and Availability 67 (1986) notes that the first mandatory car insurance law went into effect in Massachusetts in 1927.

So even though motor vehicle insurance policies had been written since the late 1800s, Massachusetts was the first state to enforce a law requiring it. (Massachusetts also was the first state with a distracted-driving scare.

Now, all states within the U.S. have laws that either set minimum amounts of auto insurance that a driver must have or require drivers to show another type of financial security that could cover any harm caused by their negligence.

Car insurance requirements vary widely from state to state, since each state is allowed to decide on its own auto insurance or financial responsibility laws.

Some states require as little as $15,000 worth of bodily injury liability coverage -- and some as much as $50,000. That makes a big difference in premiums. And even within a state, rates for any driver can vary from insurance company to insurance company by hundreds, even thousands, of dollars. 

You can find out more about your state's history of insurance laws pertaining to a motor vehicle by contacting your DMV or state's insurance regulatory body. Review your state car insurance rates here.



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