The Auto Insurance History Story
Auto insurance in just one branch of insurance and is an offshoot of other forms of insurance that were in existence since ages before the advent of the motor car to which auto insurance basically refers. Insurance is financial protection against risk of damage or loss to property or person by paying in advance a small sum of money to the insurer.
This protection is not unconditional but is subject to specific, mutually agreed terms. The loss suffered can include partial or complete loss of income to a person or some entity. Auto insurance embodies the same principals of financial compensation against loss or damage similar to other forms of insurance, which in its case relate specifically to losses incurring to/from a motor vehicle.
The Very Beginning of Insurance
Going back in history the concept of insurance can be found in a system created in the second millennium BC by Babylonian sailing merchants. These merchants took loans to fund their shipments. They paid an extra amount to the lender for a guarantee against loan repayment (cancellation of the loan) if the shipment was lost or stolen. This concept of a financial cushion against unforeseen risk(s) was extended to damage to or from motor vehicles when they came into existence around the end of the nineteenth century.
Present Regulation of Insurance
In the beginning, auto insurance was unregulated with the State having no role to play. It was just a business contract between private parties to cover claims related to motor vehicles. Later on, when plying a motor vehicle on public roads/property was statutorily deemed a privilege, laws were enacted to make auto insurance mandatory.
This was done primarily to protect pedestrians and other individuals / animals / property who could receive accidental injury / damage from a motor vehicle. It would have been an extremely painful situation if the owner of the motor vehicle involved did not have the financial wherewithal to cover the loss suffered by the injured.
Therefore, the State stepped in by enacting suitable laws to legally bind motor vehicle owners to obtain auto insurance to cover possible negative consequences relating to third parties.
This gave rise to a thriving auto insurance business sector with an ever-increasing number of companies entering the arena leading to healthy competition with lower premiums and a wide variety of products to cater to different conditions. All auto insurance products necessarily cover third party losses and may or may not extend to cover other type of losses depending on the type of policy taken by the vehicle owner.
Third Party Insurance Cover
For example, if a vehicle owner simply obtains a third party insurance cover, and his vehicle sustains damage from a boulder rolling over while moving or even when stationary and the vehicle is thrown around causing injury to another person, the insurance company will pay for the treatment and medication expenses of the injured person. It will not pay for repairs to the vehicle whether or not the owner is in a position to pay for the repairs himself or not. As mentioned earlier, the role of the State is limited only to ensure that third party losses are covered. It is the prerogative of the vehicle owner to decide if he wishes to obtain an insurance cover for his personal losses resulting from his vehicle or not.
The situation will be different when the owner has a comprehensive insurance policy. In this case, the insurance company will pay for the medical expenses for the injured person as well as the expenditure incurred to get the vehicle repaired. This is why higher premiums are payable for comprehensive auto insurance policies as compared to third party policies.
These are just two of the many types of auto insurance policies available to motor vehicle owners today. Numerous other types that have evolved over time to cater to requirements related to diverse situations are also available.
