Since the invention of the car, the need for protection for both the driver and the pedestrian was evident at an early stage. The problem in the early years was that owning a car simply wasn't achievable by everyone, so the need for blanket policies and laws just wasn't necessary.
For those that could afford a car, there was no legal requirement to have insurance. There weren't that many cars on the roads and so the need for protection simply wasn't there. It was in the late 1800's when the first vehicle with an internal combustion engine was invented. A German inventor by the name of Karl Benz (of Mercedes-Benz fame) was credited with such a feat of engineering.
Then in 1913, over a decade later, the production of cars really started to speed up, all thanks to Henry Ford. His innovative way a having assembly lines to mass produce automobiles changed people's live forever, making the car an affordable commodity, one that everyone could have. As such, with more cars on the road and more potential hazards and accidents, the need for some insurance or affordable protection was greater than ever.
In a way, car insurance started simply as a way to provide protection, but as the car market grew, so did the car insurance market.
To start with, before vehicle laws, owners of cars would have private agreements with a particular company to pay for any claims made in case of accident or injury to another person. Then owning a motor vehicle was deemed a privilege, meaning laws were put into place to protect third parties such as pedestrians, animals and property.
The idea to protect financially against the loss or damage to property actually evolved from naval insurance to protect
ships when the embarked on voyages to deliver cargo. If the ship didn't make it, then the owner and distributer were protected financially from the loss of the cargo. In this sense the policies created for maritime insurance acted as a blueprint for car insurance.
In the UK, the first insurance policy to be written by an English company was back in 1895 and it wasn't until three years later that the US followed suit. Their first policy was written in 1898 for a Mr. Truman J. Martin, who was the first ever policy holder. The first ever car insurance policy only acted to protect property that ma be damaged by a motor vehicle. In the UK, it wasn't until 1930 that the government made car insurance a legal requirement. At the very least, every car should have had third party personal insurance cover.
In 1988, the UK government produced what's known as the Road Traffic Act. Again this states that when using a vehicle on a public road or in public spaces, the driver of the vehicle must be insured or have security against the liability of injury to others (pedestrians and passengers) or damage to other people's property.
Since then, the evolution of car insurance has allowed for the development of multiple policies, tailored to the needs of the driver and the car they're driving. In terms of policies that are now commercially available, you have Third Party Only Insurance, Third Party, Fire and Theft Insurance, and finally Comprehensive Cover. Each policy varies with what they offer drivers and as such the cost of the premium will differ dramatically. The cost of each policy will also change depending on your driving experience your driving history and the type of car your drive.