Auto Insurance discrimination

[doreen]

Doreen, I am not in the dry cleaning business and I tend to assume nobody knows more about his business than the owner-manager and he should be allowed to freely set his prices withjout having to justify any reasons. If it is true that women’s shirts do not cost more to dry clean, then, one of the dry cleaners would lower their prices to get more business.

You apparently missed this part of what I said :

and in one case,charged more for the identical shirt when a woman brought it in.

Kind of negates the “costs more to clean” argument.And if all of the dry cleaners in an area charge a dollar or two more for a woman’s shirt than for a man’s, (regardless of how plain the woman’s shirt may be, or whether the man’s shirt must be pressed by hand), of course women are going to pay more than men.Willing has nothing to do with it. What choice do they have?The lowest women’s price will still be more than the lowest men’s price. By your reasoning, it would be perfectly acceptable for stores to post a variety of prices for each item based on gender or race or anything else.Of course, if only one store did this, they would lose business to the others, but if every store does it (as with dry cleaners) there isn’t any competition on that basis.

[Ned]

We went through this fight in British Columbia some years back. We have a single government owned insurance company so terms of the contract quite naturally become subject to political debate. After a year or two the company backed down on its policy to charge more for under 25 male drivers and based rates on individual performance instead.

Now older, I continue to believe that it was an unfair policy which was rightly junked. While it makes good sense from the actuaries point of view it just isn’t fair to vastly increase rates because an individual is deemed to have a 1% chance of a claim rather than a 1/2% chance and unfairly penalizes the safe drivers.

Once one gets into arbitrary distinctions like this you can always go further. Here the distinction was under 25 males but the question suggests all under 25s are nailed. Is it fair to penalize under 25 females for the accidents of under 25 males? Once you start drawing arbitrary lines where should you stop?

I don’t blame insurance companies, they really can’t be expected to do anything else in a competative environment. You need legeslation to create an even playing field. Some might argue it unfair to saddle older drivers with the additional costs but I find it far more unfair to place the burden soley on younger drivers most of whom are safe and responsible.

[sailor]

Doreen, I did not miss that part at all. My point was clearly that business owners should have the freedom to set their own prices. If they decide that, on the whole, a woman’s shirt takes more work and they should charhge more, then the fact that some women’s shirts do not cost more is irrelevant. As I clearly explained (and you chose to ignore) seniors are given discounts all the time, for exactly the same product for which I pay more. Kids get reduced fares on airplanes even though they occupy one seat, just like I do.

if all of the dry cleaners in an area charge a dollar or two more for a woman’s shirt than for a man’s, (regardless of how plain the woman’s shirt may be, or whether the man’s shirt must be pressed by hand), of course women are going to pay more than men.Willing has nothing to do with it. What choice do they have?The lowest women’s price will still be more than the lowest men’s price.

WHAT? Willing has everything to do with it. Or why don’t they charge a dollar or two more for men’s shirts too? Heck, if you have no choice why don’t they charge $20 more? There is clearly a point of diminishing returns where people decide not to dry clean, to avoid buying things that need dry cleaning etc. That point is reached much sooner by men than by women, just like women are willing to pay more to buy a shirt than men are. Take similar clothing for men and for women and the women’s tends to be more expensive to buy. This is not a male conspiracy against women, this is the market at work. Sellers have found out women are willing (yes, willing) to pay more for a similar item, while men find alternatives or just do without it. Nobody put a gun to your head to make you buy a shirt nor to take it to dry clean.

By your reasoning, it would be perfectly acceptable for stores to post a variety of prices for each item based on gender or race or anything else.

I hate to break the news to you but that is perfectly acceptable and legal and businesses do it all the time. Welcome to the real world. Airlines will quote different prices depending on your age, whether you are a student and a myriad of other things. Seniors get discounts in amny places (I am repeating it because it seems you missed it the first time around). Stores offer discounts based on whatever they want. In many clubs women don’t pay cover charge and guys do. Show us your membership card for X and we’ll give you a discount.

There is no rule or law that says a business has to charge everybody the same and fixed prices are a relatively new thing in history. Go buy a car and you will see there is no such thing as a fixed price. Obviously, if a store selling cans of beans had a posted policy of charging more to certain people, that may cause a PR problem. So they turn it around and give discounts to the other people. You get the drift? There are no laws that force you to sell at the same price, only the market and PR. In a nutshell: it is legal and acceptable and proper to charge each person as much as you can get away with and that person has the right to take his or her business elsewhere.

You seem to have a problem with women paying more for drycleaning than men. Do you have a problem with women paying less than men? Like ladies nights at bars? Or discounts at sports events? With discounts for seniors or infants? Would you support legislation mandating the same product or service should be sold at the same price to everybody?

[kabbes]

sailor - Welcome to the wonderful world of marine insurers. Thankyou, come again.

Ned -

Once one gets into arbitrary distinctions like this you can always go further. Here the distinction was under 25 males but the question suggests all under 25s are nailed. Is it fair to penalize under 25 females for the accidents of under 25 males? Once you start drawing arbitrary lines where should you stop?

You obviously missed the part where I pointed out repeatedly that you shouldn’t stop drawing the line anywhere whilst you continue to be able to find objective, accurate, independent rating factors. That’s how pricing works: you try to charge everybody the “correct” price according to their risk. But how do you establish that risk? You compare their personal circumstances to the fundamental risk factors. How do you do this? You use objective rating factors that help to define the risk factors. The aim is to end up with an individual price for everyone that correctly defines their personal risk. Age is just one factor in this defining process.

I suggest you read my initial post again. You said

While it makes good sense from the actuaries point of view it just isn’t fair to vastly increase rates because an individual is deemed to have a 1% chance of a claim rather than a 1/2% chance and unfairly penalizes the safe drivers.

which is pure drivel. If somebody’s chance of a claim is twice as high as somebody else’s* then it is entirely proper that their premium should be twice as high too. How could anything else be called “fair”? And how is such a policy unfair to safe drivers? “Safe” drivers will earn no claims discounts and thus have lower premiums. Their safer driving will reflect itself in lower premiums.

I think that you might want to rethink your post.

pan

*actually what you should be talking about is expected claim amount not frequency of claim but I’ll let it go

[Ned]

Krabbes, you are correct that age is just one factor. the problem is that age by itself is not a sufficient factor to determine a particular individuals risk of being in an accident. Yes, it works fine from the insurance companies point of view but it is completely unfair from the customers point of view.

It is completely ridiculous to assert that under 25 drivers are unsafe only because there are a high number of drivers under 25 who do drive unsafely.

Consider a statistic we can get a more meaningful grasp on. Teens are said to be at high risk for suicide but only a fool would look at the numbers without realizing that it is a small subset of teens who are at high risk. Any program seeking to address the problem would be wasting its resources if it did not first try to identify that subset.

If insurance companies cannot identify the subset who are at risk for accidents then they are unfairly burdening those who are not at higher risk with the costs of others. They are not charging more because there is a higher risk but because there may be a higher risk but they can’t identify it.

Simply because you can draw lines and make predictions about aggregate behavior does not mean that it is fair or reasonable to predict individual behavior from those numbers.

[Ned]

One thing to add.

What is really happenning here isn’t the identification of high risk customers. What the insurance companies attempt to identify is the lowest risk individuals who can be attracted with the lowest prices while everyone else gets dinged. It is competition for these low risk individuals that drives the system.

[sailor]

If you can further divide the under 25 into further groups with different risk factors, I am sure it would be taken into account. Males are riskier than females. I believe some companies charge less to married males than to single males because statistically they have less claims. I am sure if you can come up with further objective data the insurer would take it into account (maybe if you are in the military, or if you drive under X miles/year, or if…).

To say “I am a safe driver so I should not pay more” is nonsense. You are insured as part of a group and that group has an objective claim rate which is independent of you. Everybody is accident free until they have their first accident. Of course, most people in the group may never file a claim, but that does not mean the risk is not there for the insurer. To him you are one more in thousands and he is working with averages because that is what insurance is about. he does not care about you personally, nor should he, all he knows is he is putting you in a pool of people which, as a group, have a very clear track record.

It’s like people who complain because the bank doesn’t lend them money. Don’t take it personally. The bak is grouping you in a class of people with a concrete track record. Most people in the group may not default, but if the default rate is high, then you will pay for it in interest even though you may not default at all.

If you are the insurer or the lender and you do not understand this… you will go out of business so fast it will make your head spin.

[sewalk]

Insurance companies can and do discriminate all the time. Discrimination based on race is illegal in all manner of American business practices.

You say that insurance companies should not be allowed to discriminate in any way. I’ll tell you what. One of the most consistently low priced insuarance companies in the US is USAA. Call them up (they’re in San Antonio). Ask them to write you a policy. They won’t unless you are a commissioned military officer or the former dependent of one (and then you’ll pay a higher rate than do the officers themselves). USAA discriminates against all persons that are not commissioned officers in the United States Armed Services. Why? Because it was found that military officers are consistently a good risk. Nearly all are college graduates. They often spend weeks away from their personal vehicles. They tend to live on military reservations which means low traffic density and little auto vandalism. They are subjected to much more stringent judicial authority than the rest of us and tend to always act in a responsible manner, lest they be charged with ungentlemanly conduct.

Insurance companies discriminate on the basis of risk factors based on age and sex because they must to stay in business. No corporation is obligated to freely provide a service that will bankrupt it.

[Ned]

Insurance companies discriminate on the basis of risk factors based on age and sex because they must to stay in business. No corporation is obligated to freely provide a service that will bankrupt it.

They go bankrupt because no insurance company can do it on their own. Someone will always be around to identify the lowest risk people and offer lower rates while denying coverage to anyone else. If the playing field is evened by prohibiting discrimination on the basis of age or sex then no one loses money.

I should add that one can still discriminate on the basis of experience which is a more clear factor related to risk. Here the insurance starts at a set rate regardless of age, claim free driving earns you a discount while accidents earn you a surcharge.

[sailor]

Ned, I am going to go out on a limb here and guess you do not sell insurance or work for an insurance company or know the least bit about the insurance business. You obviously have no clue of what you are talking about. Am I right?

They go bankrupt because no insurance company can do it on their own. Someone will always be around to identify the lowest risk people and offer lower rates while denying coverage to anyone else. If the playing field is evened by prohibiting discrimination on the basis of age or sex then no one loses money.

Do you realise that it is not a question of agreeing or disagreeing with you but rather that what you are saying makes no sense?

>> They go bankrupt because no insurance company can do it on their own

What the heck does this mean? Do what on their own? Insure high risk drivers? That is nonsense. An insurance company can insure anything.

>> Someone will always be around to identify the lowest risk people and offer lower rates while denying coverage to anyone else.

#1- It is the right of any company to offer whatever products it wants. Generally companies offer products and services where they can make money.

#2- People with higher risk will get insurance at higher premiums. The absolute risk is not important as long as the insurance company can charge premiums which will cover the claims and leave a profit. Insurance companies routinely insure activities much riskier than driving a car by a teenager. They just charge accordingly. Low risk = low premium, higher risk = higher premium. Not too difficult to understand.

>> If the playing field is evened by prohibiting discrimination on the basis of age or sex then no one loses money.

What the heck does this mean? This is meaningless except in a context such as “if all humankind were brotherly and beneficial there would be no hunger in the world as everybody would have enough to eat”. Huh?

Please do at least a little homework before you post.

[Ned]

Sailor, I will say this one more time slowly so you understand.

Age is not a risk factor, it is merely correlated with certain risk factors.

These are not high risk drivers, they are drivers who cannot be clearly identified as high or low risk because the company lacks the information to make a proper distinction. You stated earlier that they could break it down into 25 subgroups but you can only come up with one. The insurance companies simply do not have the data to make fair distinctions so they target the whole age range instead.

From the insurance companies perspective it makes perfect sense, they are not in the business of being fair. If they can impose the cost of bad under 25 drivers on the rest of young drivers they get to charge a bit less less for people like me. No one company can break from this because they would lose their prefered low risk older drivers to those who do discriminate and can charge a bit less.

Genetic testing is a similar issue though there is a far more clear causative factor involved. Many in the insurance industry would prefer not to test but unless they are prohibited from doing so they will have no choice. Legeslation levels the playing field as it would if companies were prohibited from discriminating on the basis of age.

I have no problem paying a bit more for insurance rather than imposing excessively high rates on safe young drivers who can afford it least. You can have your free market paradise, I prefer to temper it with fairness.

By the way, I have done my homework. I watched this debate play out where I live and saw the way insurance professionals bitched and then managed to dealt with it in an equitable non discriminitory manner.

[kabbes]

…something they were able to do because they are a government insurer and as such it is impossible for them to become insolvent.

What’s all this utter nonsense about age being the only rating factor? I gave you the seven universally used rating factors along with a number of other often or occasionally used ones. For the record:

[quote]
by me in my very first post in this thread:

[li]cover (i.e. third party, comprehensive)[/li][li]type of use (i.e. business/social only/commuting)[/li][li]driver’s age[/li][li]make and model of car (or groups that contain similar risk)[/li][li]age of vehicle (new cars tend to do more miles and are repaired more often)[/li][li]past experience (i.e. a no claims discount or bonus malus)[/li][li]location (as a proxy for where car may be driven)[/li]plus:
[li]other drivers (if car is driven by spouse)[/li][li]further data on driver (driving convictions, driving experience)[/li][li]further data on car (engine modifications)[/li][li]voluntary excess (willingness to have a higher excess may indicate a more cautious driver)[/li][li]sex (women tend to do less miles than men)[/li][li]low milage (collectors who use cars in limited fashion)[/li][li]occupation (some professions attract careful risk-averse people)[/li][/quote]
It is via all of these rating factors that we attempt to identify the risk factor.

Experience is taken care of via a no claims discount (NCD). You want “fair”? Try this on for size: the data actually suggests that you shouldn’t get a full NCD until you have ten consecutive years of claim free driving and that even after that time NCD shouldn’t be more than about 40% (this statistic is straight from the UK Institute of Actuaries core reading for their General Insurance exam). And yet you routinely are offered 60% or even 70% NCD after just 5 years. This means that personal driver experience is actually currently being used even more than is theoretically justified!.

Frequency of claim varies a lot by age, but is basically
about 30% in the age group we’re talking about. In other words about 1 claim every three years for the average driver. How do you expect an insurance company to know what you personally are like as a driver based on such little data? They do their best with an NCD and give very attractive terms for this.

But age also helps to define the risk - and it does so very successfully.

Here’s another point for you collecting them: if you took away an insurer’s right to age discriminate, insurance premiums would be forced up across the board even on top of that due to the “averaging” of rates. Why? Because you would be enormously increasing the vulnerability of the insurer to insolvency by increasing the volatility of profit on each contract. This is something I’ve already mentioned. In order to safeguard their solvency, insurers would have to increase the volatility part of the insurance premium. Your insurance would therefore go up even more.

This whole argument is ridiculous. On one side we have a trillion dollar industry that spends millions researching the best ways to define risks. Extremely qualified people, experts in statistics, analyse millions of points of data in search of the best way of predicting the claims for any given individual. This process is entirely scientific - there is no room for racism, sexism or any other ism. Twenty years of increasing computer power has lead at this point in time to identifying seven major rating factors, of which age is one. The search continues.

On the other side we have a bunch of Jo Publics who don’t understand statistics, have never studied insurance and give the matter a little thought once a year when they wonder why their premium is higher than Miss Daisy’s driver. They claim that charging more to younger people is “unfair” but when asked why have no answer other than the following:[list=1][li]it just is[/li][li]we don’t discriminate by race, so why should we by age (aargh!)[/li][li]age isn’t the only indicator of risk[/li][li]some people are better drivers than others - why should they face higher premiums just because the bad drivers claim more?[/list=1]To which I say (again)[list=1]No it isn’t - unfair is asking older people to subsidise younger drivers.[/li][li]race cannot be used as a rating factor. And anyway, there is no evidence that it would be a decent rating factor even if we could use it. Which we can’t.[/li][li]No shit, Sherlock. But it is one bloody good one. Any more you got, we’ll try 'em. Along with the myriad-and-one rating factors we already use on top of age.[/li][li]This is my whole point! Insurers attempt to identify each person’s risk as best they can - they don’t know you from Adam and so they have to do the best they can with the tools at their disposal. Age is one such tool. What, exacly, do you want them to do? Ask you how good you are? They already offer you a hefty NCD if you show that you can keep your nose clean.[/list=1][/li]
Now it’s suggested that we use “driving experience” as a rating factor. Actually not a bad idea from a layman, that. But do you think that we never thought of it? Here are the problems with it:

[li]Driving experience really means the number of miles you’ve driven and under what conditions, it doesn’t mean the number of years[/li][li]Years driving experience simply isn’t anywhere near as good as age at predicting risk. This is because age correlates with more than just experience. I’ve alerady said this twice, but it bears repeating: younger drivers are also more likely to drive at night, more likely to drive in dense urban traffic and more likely to drive fast. These are all risk factors that mere driving experience doesn’t predict.[/li][li]Difference in “years driving experience” actually becomes insignificant after about 5 years. As such, we can identify lesser risk from 0 to 5 years but after that it’s almost irrelevant. Most insurers do actually put a premium on for less than 5 year’s experience.[/li][li]Years driving experience is quite closely correlated with age anyway. As such it isn’t an independent rating factor. I don’t want to get bogged down into a statistical lecture about independence here, but basically it’s not a good idea to use very related factors. Since age is far superior, years experience gets tossed into the dustbin.[/li]
Next?

pan

[Ned]

I thought my profession was arrogant, they have nothing on those working in insurance.

The point remains that all your statistics related to non-causal distinctions are pretty much useless in predicting any particular individual’s risk of making a claim unless it can be demonstrated that the insured is an average member of the group. What they calculate is the insurance company’s risk in insuring that group in aggregate.

The fact that this has been done and refined for a century doesn’t make it any more statistically valid or fair when viewing it from the perspective of the insured.

By the way, the fact that our insurance company is a crown corporation does not allow it to run losses.

[kabbes]

*Originally posted by Ned *
I thought my profession was arrogant, they have nothing on those working in insurance.

Damn right. And don’t you forget it. And pompous too.

The point remains that all your statistics related to non-causal distinctions are pretty much useless in predicting any particular individual’s risk of making a claim unless it can be demonstrated that the insured is an average member of the group. What they calculate is the insurance company’s risk in insuring that group in aggregate.

ye…ee…ss… and? In the absence of any other information, you try to create groups that are as homogeneous in terms of risk as you can and then assign an individual to an appropriate group where s/he will be an “average” member (to the extent that you hope that all members of that group of homogeneous). How does removing an indicator of risk help this process? If I can demonstrate that age is a particularly good indicator of risk, that allows me to create thirty or so groups at a stroke and thus reduce a certain level of heterogeneity. We then need further rating factors to try to get rid of even more heterogeneity. You end up with thousands of more-or-less homogenous groups.

Proofs in the pudding, my friend. When it comes to motor insurance in particular, insurance companies are pretty damn good at predicting risk. It’s one of the least volatile areas of insurance, because the risk classification works.

But marine insurance… (no, I’m not going there)

The fact that this has been done and refined for a century doesn’t make it any more statistically valid or fair when viewing it from the perspective of the insured.

Er… it certainly adds credibility. And I don’t mean that in a vague sense - I mean that in the strict statistical sense of the word “credibility”, it gives the data credibility. So it does make it “statistically valid”.

And “fair from the persepective of the insured”? How can you get fairer than assessing a risk to the best of your ability and charging appropriately? Is charging the same premium to everyone regardless of the risk “fairer”? I strenuously disagree with that. Age of driver, type of contract, location, use, age of vehicle, make of vehicle, experience via NCD - why pick on any one of these over any other? Why get rid of age but not location? Or NCD?

You still haven’t given me any justification for your position - just your ill-defined and contradictory sense that it isn’t “fair”. Give me something to get my teeth into.

**By the way, the fact that our insurance company is a crown corporation does not allow it to run losses. **

Not talking about losses. I’m talking about the risk of insolvency. If a private insurer cannot demonstrate solvency then it will be closed. It is a BFD for insurers to keep assets at a particular (>1) proportion of liabilities (for a suitable definition of liabilities). Insurers have to protect this margin at all costs. Volatility of results threatens their solvency so they have to bump up premiums in classes that are volatile. You want to increase volatility in the motor market.

A crown insurer however is not allowed to be insolvent. There is no risk of bankruptcy. As such they don’t need the extra that a private insurer must charge in case of disaster.

pan

{fixed bold. --Gaudere}

[Edited by Gaudere on 07-16-2001 at 11:07 AM]

[Ned]

No, it is not statistically valid because it does not do what it purports to do which is group people with similar risk factors. Rather it carves out a large group which contains a number of higher risk drivers and treats them as if they all have the same risk factor. As age is not a true causal factor it requires low risk under 25 drivers to subsidize high risk under 25 drivers. That’s why it is unfair.

It is my understanding that the crown corporation has to opperate under similar rules to a private insurer with respect to reserves. I think the bigger difference is that it covers the whole province so there are no random fluctuations in clients which would be problematic for private insurers. IIRC Japan requires insurance companies to provide nondiscriminatory insurance but gets around gets around the problem by using an equalization fund of some sort.

[horhay_achoa]

Wow!! I missed a bunch of posts while I was out driving recklessly all weekend. Just kidding. I do have a few things to mention though.

Sailor, in a post from Thursday you mention that “You cannot reason with a 21 year old driver why he has to pay a higher rate. You can talk to him until you are blue in the face and he will still not understand it. And yet, wait 30 years, and he sees it clearly without anyone explaining it. Age is a wonderful teacher.”
I have to say that this also works the other way around…older people are more accustomed to the way things have been for their whole lives and hence less likely to accept an alternative way of doing things that is equally as acceptable (and in this case better) than the current system.

I was also thinking about how the insurance companies decided that rates would change at 25. If the rates are higher for under 25 drivers because they have the most claims, then surely there would be even more claims for drivers under 26…or 27…or 28…and so on. The reason, and this has been mentioned before in this thread, is that the insurance companies know that they can walk all over younger people without any resistance. That does not make it right.

Just out of curiosity, does anyone know if drivers who wear glasses are charged higher rates?? It is definitely a “risk factor”. Kabbes, you brought up the risk factors, but do you know how far insurance companies go in determining them? As I asked in an earlier post…do physically handicapped people pay more? Surely someone with one arm is more of a risk that someone with two. I know they did not choose to be born with one arm, but I didn’t choose to be born in 1976 either, and that is a risk factor. The only thing a handicapped person or myself can choose to do is drive safely, and I think that handicapped people and myself are capable of driving safely.

The last thing I want to mention is this argument that has come up that if insurance companies were not allowed to discriminate by age that none of them would insure drivers under 25. This WILL NEVER HAPPEN!! The way I see it there are a few things that would happen if insurance companies could no longer discriminate. 1) They would all stop insuring drivers under 25 and the government would have to step in and make sure drivers under 25 are insured. 2) They would stop insuring drivers under 25 and the government would make a law changing the legal driving age to 25…in which case nothing would be resolved because the 25-35 year olds would become the new risk factor group. 3) They would stop insuring drivers under 25 and the government would create a law that allows people under 25 to drive without insurance…never gonna happen. OR 4) Nothing, the insurance companies would raise everyone’s rates slightly to cover for the money that they would lose by being fair.

[Mr.Wilson]

Go tell it to the MAN!
Supposedly, younger drivers are more likely than any other age group to have wrecks. All those young and dumb drivers speeding around like they don’t have a care in the world. “So what if I wreck it, it’s daddy’s money anyway”

Basically, the insurance companies do it because they can.

But I don’t neccesarily agree that it’s discrimination.

By horhay_achoa’s reasoning it’s discriminatory to keep fifteen year olds from buying beer or getting into strip clubs. The simple fact is it’s not because it’s all based on age. It applies to everybody, at one point or another, and not one particular segment of the population.

[horhay_achoa]

Mr. Wilson, there is a big difference in what I am talking about and 15 year olds buying beer…not that I have a problem with 15 year olds getting drunk! It is absolutely necessary to have insurance if you want to drive a car. It is against the law to drive without being insured. It is not a law that a 15 year old must buy beer, and if it were it would be unfair to charge them more for it. I know that we have a choice not to drive a car at all…and thereby not pay insurance, but in this day and age it is tough to get by without a car.

[ENugent]

One more subtlety on insurance fairness has to do with the cost of gathering information. This is an important issue in choosing rating factors, as well.

If information were free, the insurance companies could simply base everyone’s premium individually on the riskiness of their own driving practices. But do you really think the insurance company is going to hire someone to give every single one of their customers a driving test? And if they did, everyone’s insurance would just end up costing more, to cover the increased overhead of the tester.

Because of the volatility issues previously mentioned, it is in everyone’s interest for people to be divided into different risk pools. Theoretically, this division must go right to the point where it becomes more expensive to acquire the information about the insureds than to pool them (because insurance companies that split have an economic advantage over those that pool). In practice, it probably doesn’t go quite that far because it can’t get too complicated for the insurance agents to sell, either. You probably can’t rate people based on their exact age, instead of under-25 or over-25, for example, because of the costs of providing a table for Joe Agent, and/or training him to use the formula to calculate rates. Over/under-25 does a pretty good job of splitting risk pools while still being easy for agents and consumers to understand.

[Kiki]

*Originally posted by horhay_achoa *
Sailor, in a post from Thursday you mention that “You cannot reason with a 21 year old driver why he has to pay a higher rate. You can talk to him until you are blue in the face and he will still not understand it. And yet, wait 30 years, and he sees it clearly without anyone explaining it. Age is a wonderful teacher.”
I have to say that this also works the other way around…older people are more accustomed to the way things have been for their whole lives and hence less likely to accept an alternative way of doing things that is equally as acceptable (and in this case better) than the current system.

Exactly what age do you consider “older?” 40, 50, 60? I can guarantee that insurance companies haven’t been running the same way for the last 50 years. Things are constantly changing and improving… including the deciding factors on premiums. I’m only 26 and I think the factors determining risk are right on. Younger drivers tend to be more reckless and lack experience and therefore are more likely to be involved in an accident, whether they’re at-fault or not. If a deer is standing in the middle of a gravel road, more than likely, a less experienced driver’s instinct is going to be to swerve to avoid hitting the deer. An older more experienced driver will speed up and hit it knowing that swerving on the loose gravel is going to send them out of control and cause more damage than hitting the deer. Statistics have shown facts similiar to this and that’s why the rates are higher for drivers under 25.

**I was also thinking about how the insurance companies decided that rates would change at 25. If the rates are higher for under 25 drivers because they have the most claims, then surely there would be even more claims for drivers under 26…or 27…or 28…and so on.

**
Huh? That makes no sense.

**The reason, and this has been mentioned before in this thread, is that the insurance companies know that they can walk all over younger people without any resistance. That does not make it right.

**

Give me a break. You think insurance companies are pulling their stats out of their ass or something? It is a proven fact that teenagers are at a higher risk for accidents. It doesn’t matter if a teen drives into a telephone pole, runs a red light, or rearends the car in front of them… it can happen to anyone of any age but young inexperienced drivers are the ones that are more at risk.

**Just out of curiosity, does anyone know if drivers who wear glasses are charged higher rates?? It is definitely a “risk factor”.

**

If a person is required to wear glasses or contacts then “corrective lenses” will be stated on their drivers license. If they have an accident and they’re not wearing their glasses/contacts the insurance company won’t have to pay their claim. This factor doesn’t make their premium go up but they better make sure they wear their glasses/contacts every single time their driving if they want to be covered for a loss.

**As I asked in an earlier post…do physically handicapped people pay more? Surely someone with one arm is more of a risk that someone with two. I know they did not choose to be born with one arm, but I didn’t choose to be born in 1976 either, and that is a risk factor. The only thing a handicapped person or myself can choose to do is drive safely, and I think that handicapped people and myself are capable of driving safely.

**
If they can pass the DMVs driving test we can probably insure them. That still doesn’t mean their age isn’t going to be a consideration in what their premium is going to be.

The last thing I want to mention is this argument that has come up that if insurance companies were not allowed to discriminate by age that none of them would insure drivers under 25. This WILL NEVER HAPPEN!! The way I see it there are a few things that would happen if insurance companies could no longer discriminate. 1) They would all stop insuring drivers under 25 and the government would have to step in and make sure drivers under 25 are insured. 2) They would stop insuring drivers under 25 and the government would make a law changing the legal driving age to 25…in which case nothing would be resolved because the 25-35 year olds would become the new risk factor group. 3) They would stop insuring drivers under 25 and the government would create a law that allows people under 25 to drive without insurance…never gonna happen. OR 4) Nothing, the insurance companies would raise everyone’s rates slightly to cover for the money that they would lose by being fair.

Of your four options, number 4 is probably the most reasonable one minus the “by being fair” bit because doing it this way wouldn’t be fair to anyone. If we all pay the same amount for the same coverage then we should all drive the same car and have the same coverages. And we should probably all live in the same kind of house so our Homeowner’s insurance is exactly the same, have the same kind of boat, same kind of jewelery… basically anything that can be insured should be the same for everyone so we all pay the same amount and no one feels discrimintated against. That’s really the only real way to make it fair for everyone. :rolleyes:

If you haven’t guessed it yet, I work for an insurance company too. I haven’t stepped into this debate before because kabbes was doing such a good job explaining things.