History of the Automobile Insurance Industry

Throughout history, people have wanted to protect themselves from the unexpected. The concept of insurance dates back 5,000 years, when Chinese merchants began insuring the goods they shipped via river from boat accidents or pirates. One of the world’s best-known insurance companies, Lloyd’s of London, began in the early 1800s as maritime insurers. Although automobiles didn’t exist until the late 19th century – and they were hardly common at the time – auto insurance quickly followed the invention of the internal combustion engine.

The First Auto Insurance Policy

Brothers Charles and Frank Duryea of Springfield, Massachusetts built the first automobile powered by gasoline in the United States in 1893. Just five years later, on February 27, 1898, the first auto insurance policy was issued to one Dr. Truman J. Martin of Buffalo, New York by Traveler’s Insurance Company, according to Insurance Journal.  It was a liability policy – in those days, equines ruled the roads, and horses were easily spooked by newfangled automobiles. That first policy cost Martin $12.25 for $5,000 in liability coverage. Martin was a doctor who replaced his horse and carriage with a car to visit patients.

However, Dayton, Ohio – home of the Wright brothers, inventors of the airplane – stakes an even earlier claim. Dayton was a city of inventors, and it was in the forefront of early automobile design and production. A Dayton resident and mechanic named Gilbert J. Loomis purchased a $1,000 liability policy from the Traveler’s Insurance Company for $7.75. Loomis built the vehicle he insured himself. He remained a Traveler’s client for the next 60 years, according to a press release from the insurance company issued on the 100th anniversary of Loomis’ policy.

While exactly who received the first auto insurance policy remains a matter of debate, it was Traveler’s Insurance Company, still in existence, that recognized the liability insurance need for this new technology.

Car Insurance by Law

In 1927, Massachusetts became the first state making liability insurance mandatory before vehicle registration. That was fairly late in the game, as by that time cars has been common for more than a quarter-century, and thousands of collisions had already occurred. It wasn’t for several more decades  – the 1960s and ‘70s – that every state required drivers to purchase liability insurance.

In 1903, Massachusetts, along with Missouri, became the first states to require driver’s licenses. No test was required to obtain these early licenses. In 1908, Rhode Island began requiring driver’s tests and driver’s licenses. California, probably the car capital of the country, began requiring licenses in 1913, although it took the state until 1927 to compel drivers to take an exam. By 1930, only 24 states required driver’s licenses and only 15 required exams. However, in 1930, approximately 110 people died daily in auto accidents, a figure not much higher than today, when we have millions more people and vehicles on vastly improved roadways. Licensing and examinations picked up tremendously during the next two decades. In 1954, South Dakota earned the distinction of being the last state to require a driver’s license, but it didn’t institute an exam until 1959.

Then & Now

While the earliest policies only concerned liability, by 1902 theft and fire insurance were available for automobiles. Ten years later, insurance companies began combining liability, theft and fire insurance into one policy.

Carriage drivers were no stranger to insurance, and the earliest auto insurance policies were similar to those used to insure horse-drawn vehicles. In fact, insurance agents just crossed out “team” on the policy – for teams of horses –  and wrote in “auto.” Travelers, again, was the first company to issue a liability policy with automobile printed on it. Early automobile premiums were based on the vehicle’s horsepower.

Today, every state, with the exception of New Hampshire, requires liability insurance. The modern standard car insurance policy includes limits determined by individual states. Liability is the only mandatory coverage, although anyone with a valuable car should purchase collision and comprehensive insurance. If the car is leased or not owned outright by the driver due to car loan payments, collision and comprehensive coverage is mandatory.

Looking to the Future

Just as cars replaced the horse and buggy, so might autonomous vehicles replace those driven by humans in the near future. Once people start depending on self-driving cars, they are less likely to own them. Already, the growth of ride-sharing services such as Lyft and Uber has reduced automobile purchases by the millennial generation.

As times and car-buying habits change, so will automobile insurance. Future car insurance policies probably won’t look radically different in a few decades than they do today, but will keep up with the needs of policyholders. For example, if you leave items in a shared, self-driving car, your insurance policy may cover it. Already, some insurers are focusing on car usage, so that policyholders only pay for coverage based on their commutes. The business model for auto insurance will likely change, but the day when autonomous vehicles rule the road is still many years away, and the shift should happen gradually.

In many ways, the future is here. These days, most people search online for the best auto insurance rates, and that will remain the case until the next great technological advance enters our lives. With The General®, you’ll receive your auto quote within two minutes of completing the online questionnaire. Auto insurance needs depends on individual factors. When shopping for auto insurance, look for available discounts and decide what level of deductible is best for you.


The more things change, the more they stay the same. Just 125 years ago, America depended on horsepower. Now, the nation depends on motor vehicles, but in the next 25 years the majority of such vehicles may prove self-driving. Just as the transition from horse to internal combustion engine changed the way we travel and conduct business, so will the move to autonomous vehicles. Technology should reduce the number of accidents when driver error is no longer a factor.










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