Until astronaut Neil Armstrong set foot on the moon and took his "giant leap
for mankind," the last century's greatest milestone in travel was arguably the
progression from horse and buggy to automobile. While the airplane would affect
how many people travel, and eventually how most people travel distances in industrialized
countries, automobiles have become part of everyday life. The profound effect
the automobile has had on life in the United States is mirrored by its impact
on the insurance industry.
The Automobile is Born in America
By 1887 American inventors were experimenting with a variety of vehicles
powered by steam, electricity, and gasoline. Ransom E. Olds, a machinist in
Lansing, Michigan, completed building a buggy driven by a gasoline-fueled steam
engine. Also in 1887 an electric car, powered by storage batteries, was driven
on New York streets. Five years later, William Morrison of Des Moines, Iowa,
drove his first electric car in Chicago, and then built a dozen by the end of
1895. But it was the onset of gasoline-powered automobiles that truly fueled
Initial credit goes to a pair of bicycle designers from Springfield, Massachusetts,
the Duryea brothers. In 1892 they constructed their first gasoline auto. Assembled
in a loft, the vehicle suddenly moved forward and plunged through a door to
the street below. Four years later, the brothers produced 13 two-passenger,
two-cylinder runabouts in Springfield, marking the first time an automobile
company produced more than one car from a single design. With this milestone,
the American automobile industry was launched.
The Olds Motor Vehicle Company represented the cutting edge of automobile
production. Formed in 1897, 10 years after Mr. Olds assembled his gas-powered
"buggy," it was the first true auto company. Although it produced only four
vehicles, in 1901 its successor, the Olds Motor Works, introduced the concept
of mass production by building 425 curved-dash Oldsmobiles. By 1903 the company
was producing 4,000 cars annually. Entrepreneur Henry Ford made his Model T
affordable to most Americans, thereby providing a seminal boost for the insurance
Mr. Ford had built his first horseless carriage, a strange contraption called
the Quadricyle, in 1896. With a body resembling a crude wooden box, it had a
single seat and steering tiller, bicycle wheels, and an engine cylinder fashioned
from a steam engine's exhaust pipe with a wooden flywheel and an electric bell
on the front. Seven years later, he incorporated the Ford Motor Company and
it soon sold its first Model A car to a dentist. (A new Model A was not introduced
At the turn of the century there were 8,000 automobiles on American roads,
a figure that jumped to 78,000 by 1905—nearly tenfold in 5 years. More cars
powered by steam and electricity than gasoline were built during the centennial
year. Shortly thereafter, steam-powered vehicles became less prevalent, and
by 1920 they were rare. Electric automobiles experienced the same decline as
gasoline became the fuel of choice—and of the future.
Despite their popularity in certain sectors, automobiles remained controversial
at the end of the nineteenth century. After considerable study, the Scientific
American offered a positive spin in 1899 observing, "We not only give it our
respect but our admiration, for with its big rubber tires, it gets over the
ground in a velvety sort of way and reaches its destination without becoming
tired." There were also many skeptics—insurers among them—and with good reason.
Driving conditions were atrocious. The problems included narrow dirt roads that
were conducive to accidents between cars as well as between cars and horse-drawn
conveyances, a lack of driver education, and no signs or signals indicating
right of way.
Auto Insurance Is Born
Such impediments only highlighted the need for insurance and progressive
insurers. The Travelers Insurance Company responded. In 1897 it issued the first
third-party automobile policy. An independent agent placed the policy, which
was written for Gilbert J. Loomis, a mechanic of Westfield, Massachusetts, who
built a one-cylinder car the year before and later formed an auto manufacturing
Ronald W. Vinson and John Cosgrove, in their unpublished manuscript, "Challenging
Risks: The Saga of American Insurance," report that Loomis remembered paying
$7.50 for $1,000 of liability protection, because he had paid the same amount
to ship the car to New York City. Loomis also recalled, "That particular car
went to Bloomingdale Brothers, who, after demonstrating it in Central Park,
and scaring every horse that saw it, wanted to give me an order for 500 cars.
The deal fell through because I couldn't guarantee delivery in 4 months."
An 1898 Travelers policy covered a car owner against damages to persons or
property caused by the car. Liability limits were $5,000 for one and $10,000
when more than one person was hurt. Early policies were written on "team forms"
designed to protect horse-drawn conveyances where damages were caused frequently
by runaway, kicking, and/or biting horses.
Insurance for auto fire and theft did not exist before 1902. Collision coverage
came even later, and typically insurance was not available for claimants, often
forcing lawsuits. Messrs. Vinson and Cosgrove recount a Pittsburgh man's frustration
with a jury unsympathetic to car owners. Having abandoned his new 1899 Rikker
when its wheel became jammed in a streetcar's track, he explained:
I saw the headlight of an approaching trolley car. I leaped out, waving
and yelling, but the car came on. It developed later that, this being near
the end of the line and no passengers being on board, the motorman had left
the controls and gone to the rear of the car to talk with the conductor.
My beautiful Rikker was smashed. I sued.
In court, the attorney for the streetcar company told the jury that a
company which provided transportation so that the poor working man could
ride home from his work when he was too weary to walk, should not be penalized
for damaging a rich man's plaything, which was good only to frighten women,
children, and horses. The jury awarded me one dollar.
Resistance continued to underwriting auto insurance when the president of
Insurance Company of North America (INA), Charles Platt, stated, "I'll never
insure a gasoline can on wheels, the noisy stinking things!" And in 1903, the
insurance trade journal, Spectator, reinforced
this sentiment by suggesting "the motormen—chauffeurs is the general term—driving
automobiles are usually reckless, rushing madly past frightened teams [of horses]
without attempting to slow down." They added, "nervous horses are sure to be
alarmed at such apparitions … [underwriters] might serve the cause of public
safety by refusing to insure anyone who has acquired the automobile habit."
Nonetheless, a year before, the Boston Insurance Company became the first
U.S. insurer to provide non-liability car coverage when it insured an automobile
in transit from England to America. In Biography
of a Business 1792-1942, Marquis James notes the policy was written on
a "schooner form." He reports that United States Lloyd's followed by offering
auto fire and theft coverage at all times and places; and in 1905 INA became
the third American insurer providing such protection.
Seven years later, another progressive insurer, Aetna Life & Casualty Company,
recognized automotive market potential and began underwriting risks. In 1912
it combined liability, property, and fire coverage—the forerunner of multiline
policies. Some agents and brokers resisted selling car insurance until this
modern conveyance demonstrated staying power. Eventually, most embraced the
coverage as an essential stimulant for their economic growth.
As with shipping and railroads before, insurance in the automotive industry
had broad implications for American life. Then, as now, our industry provides
an essential safety net for businesses and society at large, which will accept
critical risks only when insurers join them in a creative, yet prudent, risk-taking
Robert Moore has worked with Jack Bogardus for a quarter of a century. Mr. Moore worked for
Alexander & Alexander from 1977 to 1995 and served as a senior vice president
of Alexander & Alexander Services Inc., as well as chairman and president of
A&A Government and Industry Affairs Inc. In 1985 he was elected president of
the National Association of Insurance Brokers, and from 1989 to 1993 he served
as chairman of that organization's Past Presidents' Advisory Council. He has
written and spoken extensively on corporate issues. As The Conference Board's
emerging issues coordinator, he identified and responded to the business community's
public policy concerns. He is coauthor of School
for Soldiers: West Point and the Profession of Arms, which was selected
as a New York Times "Noteworthy Book."
Mr. Moore earned a bachelor's degree from Davidson College, a master's degree
from the University of North Carolina, and a doctorate from the University of
Wisconsin. Commissioned a U.S. Army officer, he taught at the Military Academy
at West Point and was an associate professor on the graduate faculty at the
University of Maryland. He can be reached at 703-759-0233 and through the Web