A common complaint about insurance arises when it is mandatory, as with auto insurance for individuals and worker’s compensation for business owners. But have you thought about what life would be like if either of these were not compulsory?
Let’s talk about auto insurance.
Auto liability insurance is required by law (except in New Hampshire) for a good reason. In 1925 the first state laws making it compulsory were written in Massachusetts and Connecticut when it became apparent what a legal mess was developing with the boom in auto ownership well on the way, and our roadways becoming packed with over-zealous auto enthusiasts.
So just to be sure we’re on the same page, let’s make a quick distinction:
Comprehensive and Collision Insurance (also known as Physical Damage coverage) is not mandatory, and it protects you, the holder of the policy.
Auto Liability Insurance is mandatory, and it protects others from you in the case of an accident which you cause. Importantly it also protects you from another person who causes an accident provided they carry the liability insurance.
But what if it were not made mandatory? Sure, if these matters had to be taken to court, proving fault in an accident could be easy depending on who witnessed the crash, and depending on the circumstances. But it isn’t always cut and dry. Even if it is, and in court you were found not to be the liable party, you still would have already taken the time off work, and paid your legal fees as well. For that reason, some will say it all comes out about even either way even if you are not liable.
Assuming that is true, then it goes to show why it is best for all parties involved to have a system in place that minimizes time spent and legal costs.
…and as for Worker’s Compensation…
The first worker’s compensation coverage was implemented in Germany in 1884. Not until 1911 did the state of Michigan succeed in passing a Worker’s Compensation law. In the next decade, 41 states followed suit.
Before worker’s comp law, the only way for a worker to be compensated for an injury on the job was, again, through the courts. Naturally suing one’s employer – as opposed to settling the dispute based on the previously agreed-upon parameters of a worker’s compensation benefit package – was a tough spot for a worker to be in.
And being out of work due to the injury, the person often did not have the funds available to do so. The employer always had the upper hand. Their negligence had to be proven in court.
As 20th century industrialization reached a peak, this became a major issue. It wasn’t until 1917 that the Supreme Court ruled that at the state level, compulsory worker’s comp coverage was not a violation of due process.
In the 21st century, there are enough regulatory protections that reduce the number of workplace injuries drastically in comparison to those days. But if you are a business owner, had worker’s comp laws never been enacted and misfortune struck, where would that leave your employees?