In the early days when gun-toting bandits were likely to rob the stagecoach or attack a bank, it was every man and woman for him or herself. Although insurance as we know it today had developed in London early in the seventeenth century, the idea was not widely accepted in most of America until much later. Individual companies were established in the mid-eighteenth century, but it’s not until the 1850s that states began to regulate the industry and appointed Insurance Commissioners. From then on, progress has been rapid. The idea is essentially simple. The insurer estimates the total amount of claims it’s likely to have to pay in a given year and divides that sum among all those wanting insurance. Everyone pays into the fund. That money is invested and slowly grows over the year. As claims come in, money is paid out. If there’s more than enough money to pay the actual claims, the insurer makes a profit. Should the insurer make a loss, all the insured pay more the next year. Because the losses are shared between a large number of people, each person pays a small amount to buy peace of mind.
Whatever the car insurance companies agree with the policyholders has to be consistent with the local laws. Until fairly recently, all the laws focused on financial responsibility. All the companies had to have a minimum amount of capital as a buffer against claims. That way, if they were hit by an unexpected run of claims, they would not fall into bankruptcy. For the policyholders, the relevant laws were self-preservation and tort. As a matter of practicality, if you own property and it’s destroyed in a fire or some other natural disaster, you want to replace it. With insurance, this is usually practical. The law of tort make you liable to pay compensation if you damage goods belonging to someone else, or injure them. If we were cynical, we could say you can ignore this liability if you injure someone poor. But injure a rich man who can afford an attorney to sue you and you realize the advantage of having liability insurance.
Because the majority of states thought all drivers should be responsible, they imposed a mandate. Now apart from drivers in New Hampshire, everyone who sits behind the wheel of a vehicle on a public road must carry a minimum amount of liability insurance. Because of the mandate, this is relatively affordable online car insurance. To check out exactly how much you will have to pay, get free car insurance quotes from as many insurers as possible. In most states, this is the cheapest form of insurance. It would be even lower if the law enforcement effort was greater. As it is, as many as 20% of drivers are uninsured in each state. Because the number of policyholders sharing the loss is smaller than it should be, every car insurance quote is higher. This is an unfortunate situation.