Many people would find it strange to think that the story of auto insurance would start back in Mesopotamia 5,000 years ago. It did not start with chariot collision coverage, however, but with cargo insurance.

The modern story really started with the advent of the automobile in the last century, but the concept was not new and it was not created for automobiles. The concept was what was known as mutual assumption of risk. An even earlier concept began almost with the dawn of trade over 5,000 years ago. When ancient traders first began sending off boats loaded with cargo, the idea of catastrophic loss began to have some economic meaning. When a boat sank and a cargo was lost, a merchant could be ruined.

There were a lot of reasons that ancient man would have for why fate struck down one and let another prosper. It could have been the will of the gods or it could have just been pure luck, but regardless, neither reason made for good business. The idea of shared risk was the basis for insurance. If every merchant paid a small amount prior to each voyage and the proceeds were used to protect from catastrophic loss the unlucky one, luck lost a bit of its control on commerce.

When the automobile was first developed and began to replace the horse and wagon on the roads of America, it was not long before the prospect of catastrophic loss emerged again. The maritime insurance industry was well established from its ancient roots and it was an easy jump to automobile insurance on the same principle of mutual assumption of risk. The problem was two fold right from the beginning. There was the dual loss potential of actual damage to your vehicle and the much more serious liability issue.

It was liability that had the potential for catastrophic loss. When an accident occurred, even from the very beginning, it seemed that fault was assigned. This became a guiding principle of automobile accidents. Someone was always to blame and that person was liable for the damage to the other's vehicle. Worst, they were liable for the injuries to the "innocent" people involved. It was this need to protect drivers from liability that led to the growth of automobile insurance.

The fact that uninsured motorist who caused accidents had no means to cover their liability was the spur to enact laws within the various states requiring a minimum amount of liability insurance. Each State passed their own laws and made enforcement part of the licensing and registration process. Some States, such as Virginia, allowed uninsured motorist to pay a hefty fee in lieu of having insurance, but the fee was actually a sort of risk sharing payment similar to insurance anyway.

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