Here’s what you need to know…
- The McCarran-Ferguson Act passed in 1945 stipulated that the state should regulate insurance industries and laws in the interest of the public
- State officials establish mandatory car insurance requirements. They are also responsible for updating laws and regulations as necessary.
- To ensure that they do good business, agents are licensed, and that the companies are financially sound, the state regulates companies doing business in the state.
- Some states have financial accountability laws, while others have mandatory auto insurance laws that require you to purchase coverage.
- Massachusetts was the first state that required insurance in 1925. New Hampshire, however, is the only remaining state where drivers are legally allowed to drive without insurance.
In some states, auto insurance was not required. In some states, vehicle owners have the option of choosing how to pay for any damages they may cause. However, most states have their own car insurance requirements that protect all vehicle occupants, bikers and pedestrians while they are on the roads. Start comparing car insurance rates now by using our FREE tool above!
Auto insurance wasn’t a requirement as soon as the automobile was invented. The rise in popularity of motorized cars in the United States was the catalyst for this process. This guide will explain the history and evolution of personal car insurance. It also explains how the legislation was passed.
Why is car insurance necessary?
Car insurance may seem like an old form of financial protection, but it’s not. The government first created steam-powered cars in 1887. Officials also recognized the need for road paving.
Henry Ford was producing more than 4000 vehicles each year in 1903. This is why auto fire and theft insurance was first developed in 1902. Third-party protection was not available until 1912, when liability coverage was introduced.
Who is responsible to set auto insurance laws?
When the United States was just starting out, insurance regulation was very complex. Because the Federal government believed that products sold across state lines fell under its jurisdiction, this is why it was so complicated. After the ruling by the Supreme Court in the Paul v. Virginia case, it was found that selling insurance wasn’t actually interstate commerce. This decision made it possible for states to regulate insurance.
Although regulation has changed hands several times, the McCarran-Ferguson Act was adopted in 1945. It stated that it was better for the public that states regulate their own insurance industry. However, the ruling did not make insurance compulsory.
What can states do to regulate the insurance industry
It is interesting to note that the state regulates in three ways. They create legislation, regulate companies and review court decisions. This is done to ensure fair rates for all companies and protect consumers. The state regulators help to keep the market competitive as well as maintain insurance solvency. Some of the statutes that State Departments of Insurance regulate to achieve these goals include:
- Sales and claims procedures
- insurance rates
- The formation of insurance companies
- Policy forms available
- License of brokers and agents
- agent ethics
- Taxation of premiums and companies
- Financial requirements to avoid bankruptcy
- Audits and Solvency Testing
What was the origin of the first auto insurance policies?
It may be surprising to find out that insurance became more widely available throughout the country. While the first policies had their flaws, the first state to offer drivers the option to buy liability insurance was Connecticut. This insurance was introduced in 1925 in order to assist drivers who were involved in an accident. Connecticut already had a law that required drivers to prove their financial responsibility after an accident. This is why many insurers have their headquarters in Connecticut.
What was Connecticut’s state law in 1925
Auto insurance wasn’t mandatory at the time, but it was an option so that driver licenses weren’t suspended. It is important to know that there was no reporting requirement at that time. No one will know if someone didn’t report their accident. This is how Connecticut law was written in the early days of financial responsibility.
- A bond of $10,000 is required
- For $10,000, deposit bonds or other collateral with the treasurer
- You can deposit $10,000 cash
- Minimum coverage of $10,000 for purchase liability
Is auto insurance mandatory now?
While Connecticut may have been the first to offer liability auto insurance, Massachusetts was the first to make it mandatory with the passage of the auto insurance law in 1927. It was included in the state’s driver licensing law. Other states didn’t adopt their own mandatory auto insurance laws until many years later. Some states adopted similar mandatory laws, while others chose to adopt more relaxed pieces of legislation.
What is the difference in financial responsibility and compulsory insurance?
When states such as North Carolina and New York joined the list of unions that had laws passed, auto insurance was made mandatory in most states. Insurance laws can be confusing in every state because they have different types of laws. Some states lean towards financial responsibility laws and others have passed more strict mandatory or compulsory auto insurance laws with uninsured driver penalties. Let’s see how each works.
- Financial responsibility: Drivers can prove that they are able to cover any damages with cash, bonds or collateral.
- Compulsory Insurance: Requires all vehicle owners to carry a minimum liability coverage on their vehicle. Owners who fail to comply with the requirements will be subject to penalties for uninsured driving.
New Hampshire is the only state without auto insurance requirements. You will need protection to comply with the law if you reside in another state. Before you buy a policy, make sure you have an accurate estimate of the cost of coverage. You can use an online rate comparison tool to find the lowest rates and the most comprehensive auto coverage.
In 1886, the first car was created. Although the tricycle-like vehicle may have been powered by gasoline and could travel at 10 mph, it was not covered under car insurance. Travelers Insurance sold the first auto insurance policy in 1898 for $12.25. This is a little less than the $900 average cost for car insurance, which currently amounts to $300.
Nearly every state requires auto insurance. It is quite crazy to consider when the first auto insurance was implemented considering how long ago cars were invented. But when did it become compulsory?
Car insurance becomes law
Mandatory car insurance must be determined state-by-state and not by the federal government. Connecticut and Massachusetts were the first states to require liability car insurance in 1925, through liability and compulsory coverage in case of auto accidents. Drivers had to either buy coverage or prove financial responsibility of at most $10,000 using cash, bonds or stocks. Drivers who fail to follow these steps will lose their license. You are a forward-thinking man, right?
These policies evolved into more easily recognizable forms. In 1927, Massachusetts expanded on the law for mandatory compulsory coverage and made it mandatory car insurance. Before registering a vehicle, drivers had to prove that they had auto liability coverage. Soon thereafter, New York City and North Carolina mandated laws in 1950s. Many other states followed suit with similar regulations until the 1970s.
First Car Accident
In New York City, Henry Wells, a Massachusetts native, collided with Evelyn Thomas, a New York bicyclist. This was the first car accident. Thomas was left with a broken leg after Wells spent the night in prison. Car insurance could have been useful then. Despite how much you might hate paying your premium, there are reasons to be happy with car insurance.
