Ok, we’ve gotten to the point where we are going around in circles so what follows is posted for the mere fun of it and without any expectation of enlightning anybody.
It has been proven that on average young drivers cost more to insure than older drivers. The argument that this is due to a small number of bad drivers which penalises the others is kind of silly. Ok, even if you buy it, so spreading the cost of insuring a bad under 25 driver to other under 25 drivers is unfair but spreading it to older drivers is not? Huh? I guess we’ve have to define “fair”. As in “fair” taxes are the ones others pay (yeah the rich! let’s sock it to them!) and “unfair” taxes are the ones I am forced to pay against my own unanimous and democratic will.
Why stop at making older drivers pay? Why should your fairness end there. Why should not people who do not drive but have home insurance pay? That would be even fairer. To heck with it. We could be much fairer and save a lot of money if we just had a government program pay for claims out of our taxes. That way we all pay. Now that’s fair.
By the way, nobody has responded to my argument about age discounts. It costs exactly the same (if not more) to give service to the senior geezer who gets a discount to ride the bus or a plane. If you are going to argue against age discrimination in pricing, this is a much better place to start. I will even give you my vote until such time as I become an old senior geezer myself.
To say a statistical correlation between youth and accident claims does not prove causality is irrelevant. Insurance works with averages to spread the risk and is not concerned with philosophical questions about causality. Causality is irrelevant. But I will go further. Age and sex are very good predictors for risky behavior. Young men commit many more violent crimes than old women. There is a cause for a higher accident rate for young people. Young people have stupidity flowing through their veins in the form of hormones and other biological fluids. An 18 year old male has to be the highest known concentration of stupidity and bad judgment. That is caused by biology, not by the insurance companies.
I dont think we should all pay the same insurance rate at all. Obviously rates have to depend on the age and make of your car, but that is a fact that directly effects the cost of making repairs to your car. Age has absolutely nothing to do with your likelihood of getting in an accident, which is why it should have nothing to do with determining your rate.
I do think that Kabbes has done a good job explaining how and why rates are set the way they are within the confines of the current system. Kabbes has not done a good job explaining why the system could not be set up differently. Everything is relative. If we were to change the law so that insurance companies could not use age to determine rates then everyone’s rates would go up. Some people would be upset for a little while, but after a few years everyone would be used to paying slightly higher prices, and the result would be a system that allows a driver to determine his/her own rates by driving carefully.
Nobody is saying the statistics are untrue. It’s just that the application of them is unfair. A good business decision is often contradictory to the principle of equality. Given a decision between two workers, one who has a certain likelyhood of becoming preganant and taking time off from work(a woman) and one who doesn’t(a man) it would be probably be a good business decision to favor hiring the man all else being equal. However the principle of equality invalidated the application of that good business practice with the FMLA and so forth saying that it is illegal to descriminate against someone just because she is a woman, even if the risk of pregnancy is true.
Charging someone higher rates because they are young is discriminitory. It doesn’t matter that there are actual statistics showing that there is a higher risk in the group, because ideally we should be dealing with people as individuals. And that individual should not be punished for being a member a group that he has no control of being in.
It’s the same exact reason why racial profiling is unfair. There are statistics that show a higher percentage of non-white people will go to jail in their lifetimes. http://www.ojp.usdoj.gov/bjs/crimoff.htm
But the vast majority of people feel it’s wrong to think that a non-white person has a higher chance of being a criminal, even if the statistics show that they do have a much higher chance of being prosecuted and sent to jail as a criminal during their lifetime.
It simply is unfair, but as many other people have said it is unfair to a group that doesn’t have the political power to get it changed.
>> Age has absolutely nothing to do with your likelihood of getting in an accident
If you believe this you might as well believe anything. If you believe that I can understand how you feel but your premise is simply NOT TRUE. Statistics are there to prove it. You just don’t want to read them. Your premise is FALSE and anything flowing from it is invalid. Young drivers, as has been pointed out many times already, have a much higher claim rate. To deny that is to deny the obvious and we can just turn the lights out and go home.
I am not denying that young drivers have higher claim rates. What I am saying is that just because they have higher claim rates is not a reason to charge all younger drivers more for insurance. I agree with just about everything that has been said by both sides of this argument. I KNOW that younger drivers “as a group” have higher claim rates. I KNOW that younger drivers “as a group” may drive more recklessly. But, AS AN INDIVIDUAL, a younger driver has no more of a chance of getting in an accident than any one else on the road. I REALIZE the reason that younger drivers pay higher rates is because of the reasons mentioned throughout this thread. What I am saying is that it DOES NOT have to work that way…it’s just the way it works right now. Things change. Just because something is working does not mean that it is the only way it can work, or the only way it should work. It seems very wrong to me to bundle ALL drivers under 25 into one group and label them all “maniac drivers”, and to go beyond the label to actually charging them more money. It doesn’t take a genius to figure out why they charge younger drivers higher rates, and I don’t think it would take a genius to develop a new system that does not penalize drivers because of there age.
Someone in the insurance industry can correct me if I’m wrong, but the companies I’ve used don’t in fact "bundle all of the under 25 drivers into one group."It’s used as one factor. The premiums for under 25 drivers depend on the same factors as older drivers such as miles driven per year,whether the driver has been licensed for more than three years,whether a defensive driving course has been taken,whether the car is used for commuting,business or pleasure,whether multiple cars are listed on the policy,whether there have been tickets and accidents and so on plus additional factors that really only will apply for someone under twenty five, for example driver’s ed discounts,discounts for good grades and discounts for college students who will not be driving while away at school.The premium for an under-twenty five driver will be higher than that of a thirty year old who is the same in all other areas, but an individual twenty year old who drives under 5000 miles per year, took drivers’ ed and defensive driving, has not tickets and accidents,doesn’t drive while away at school and has the car insured under the parent’s policy could easily pay less than an individual thirty year old who never took defensive driving, drives 20.000 miles per year on business and has a speeding ticket.And that twenty year old will certainly be paying less than a twenty year old who didn’t take defensive driving or drivers ed, has his or her own policy,drives 10.000 miles a year and has tickets or accidents. So you see, even under twenty five year olds do get to determine their rates to an extent.
And you know, most under-twenty five year olds eventually become over twenty-five year olds.Say we don’t let insurance companies factor in age.You’d get a lower than current rate for about 7 or 8 years.How long will you be paying more than the current rate? From when you’re twenty five to the time you stop driving.And if it’s not fair to use age just because drivers under 25 have higher claim rates, then why use any factors just because one group has higher claim rates?Why not just have one price for everybody? Forget age and make of the car,because that only applies to collision and comprehensive {which aren’t required by law),not liability (and by the way, did you know that some cars cost more to insure for comprehnsive because they have high rates of theft.Is that fair?)One reason ( and I bet it’s a big one) is because if there is one price for everybody, I lose an incentive to drive safely.There are certainly some people who would drive more dangerously if it wouldn’t affect their insurance rates.Most people wouldn’t take driver’s ed or defensive driving if insurance rates weren’t lower.
I’m sorry, but these two sentences make no sense in connection with one another. The only thing I can think of that you are trying to say is that a randomly selected individual younger driver may have a lower risk. As I explained above, trying to identify these lower-risk individuals would just raise insurance rates for everyone because of the increased overhead.
I have never seen the under-25 group labeled as maniac drivers by any insurance company. Further, any individual who said something like that on this board would be taken to task for overgeneralization. That’s why all of us have been using phrases like “total number of claims”.
Go for it - a whole lot of insurers would probably like to hear this system. But no one, including the people who do it for a living, has been able to figure out a better way.
Look, you obviously feel that your own insurance rates unfairly reflect the riskiness of your driving. I felt the same way at 18, and I was wrong. Even though I never got into any accidents before age 25, I look back on those years in horror. Now, maybe you’re a much better driver than I was, and your premium doesn’t accurately reflect your risk. But there will be times in life when you’re at the bottom of a risk pool, and times when you’re at the top. Not everyone can be above-average.
Finally, age discrimination is one of the fairest kinds of discrimination there is (how’s that for a bizarre distinction?), because everyone gets a chance to be in the favored category.
>> trying to identify these lower-risk individuals would just raise insurance rates for everyone
Maybe the form could have some check boxes:
Are you
(A) a good driver or
(B) a bad driver?
>> not everyone can be above average
Unless you happen to live in Lake Wobegone.
The assertion “younger drivers “as a group” have higher claim rates. … But, AS AN INDIVIDUAL, a younger driver has no more of a chance of getting in an accident than any one else on the road” has to be right up there with “the sound of one hand clapping”. Maybe this is also true in Lake Wobegone, “where all the women are strong, all the men are good looking, and all the children are above average”.
I am a 21 year old male from the North side of Dublin, Ireland.
If I was to get insured on a car, lets say a 1.1l Honda Civic. My insurance would be:
£4,500 a year, fully comprehensive (thats around $6,000 a year, for the new worlders amongst us.)
As a result, I cannot afford to drive a car, nor will I be able to afford to drive a car until I’m about 25-26.
When I get to the grand old age of 25, and I go for insurance, my premium will be bumped up severely because I have no previous driving history. I’ll have no previous driving history because the insurance company priced me out of the market in the first place.
( that is, if I could get an insurance company to cover me in the first place, which, believe me, is extremely hard to do in Dublin. )
So, now, I’ll be driving a 50cc scooter for the rest of my life. The insurance for me this year was about £500.
------------------------------------------------------------The assertion “younger drivers “as a group” have higher claim rates. … But, AS AN INDIVIDUAL, a younger driver has no more of a chance of getting in an accident than any one else on the road” has to be right up there with “the sound of one hand clapping”. Maybe this is also true in Lake Wobegone, “where all the women are strong, all the men are good looking, and all the children are above average”.
------------------------------------------------------------Sailor—I don’t see what so hard to understand about that statement. Younger drivers as a group have higher claim rates because more INDIVIDUALS in that group choose to drive recklessly, but it doesn’t make sense to charge everyone in that group more to cover for the carelessness of a small percentage of the whole group. As an individual someone under 25 can be as safe as a driver as someone over 25. If everyone’s rates were raised a little bit to cover for the reckless drivers on the road maybe people like TwistofFate could afford to drive a car.
Look at retail stores. Statistically, teenagers are more likely to steal something from a store than an adult is, but we do not charge them more to buy anything. The cost of people stealing from a store is paid evenly by everyone who shops at the store. Truckers delivering product to the store are more likely to be involved in an accident that damages the goods, but they are not charged more when they want to buy something. Once again the cost is spread evenly throughout everyone who shops at the store…not put upon the “high risk” group.
quote:
It doesn’t take a genius to figure out why they charge younger drivers higher rates, and I don’t think it would take a genius to develop a new system that does not penalize drivers because of there age.
Go for it - a whole lot of insurers would probably like to hear this system. But no one, including the people who do it for a living, has been able to figure out a better way.
ENugent—I don’t think it’s that insurance companies “have not been able to figure out a better way” of determining rates…they just have not been forced to figure out a better way of determining rates. Why would they put the time and effort into changing a system if they can keep it the same and face no consequences?? Believe me, if legislation is passed that says they can not use age as a factor, insurance companies will figure out a new way to determine rates very quickly. I mean common…do you really think there IS NO OTHER WAY?? That’s just ridiculous.
Yes, I do think there is no other way that will not end up costing more money. That is because I have taken both basic economics and basic statistics, which you apparently have not. Theoretically speaking, the only way to make insurance more efficient is to come up with a cheaper way of identifying low-risk and high-risk drivers to the same degree of accuracy. I don’t deny the possibility that there may be such a method, but actuaries have been looking for it for a long time. Your insistence that there has to be a way, even though you have no idea what it is, is reminiscent of the idea that the government should pay for all kinds of additional services, but without levying any more taxes. I want it, therefore it has to exist. Sorry, kid, but that’s not how the world works.
OK. What would be the problem with a system like this? Keep in mind that there would still be groups based off of the type and age of the car being insured. Obviously, this is a very small sample, but you can still get the idea. Each time a driver was involved in an accident or incurred a speeding ticket the violation would be electronically sent to a national database that would automatically update the insured driver’s rate.
Say there are 30 drivers (all w/ the same type and age of car) being insured. They each pay 10 bucks a month.
30*10= $300
Say one of the drivers gets in an accident. His/her rate goes up to 12 dollars a month. Everyone else’s rate, who did not get in an accident or get a ticket, comes down to 9.93 dollars a month.
(112)+(299.93)= $300
Say the same driver gets a speeding ticket. His/her rate goes from 12 dollars to 13 dollars a month. And a different driver gets into an accident driving their rate from 9.93 to 11.93 dollars a month.
(1*13)+(1*11.93)+(28*9.82)= $300
And so on. The insurance company receives the same amount of money in payments each month. And, if the statistics are accurate, many drivers under 25 will be paying higher rates which will lower the rates of the drivers over 25, but the drivers under 25 who are good drivers will not be penalized for the careless driving of their peers.
I admit I don’t know much about economics, so if there is an economic reason why this wouldn’t work I would like to understand what it is. The only reason that I can see why this wouldn’t work is that the people with political power don’t want to take the time to implement it.
I forgot to mention that in my example the insurance companies are receiving 300 dollars a month BEFORE the new system is implemented, so they don’t get any less money per month once the new system has begun.
Twisty - that sounds incredibly high to me. Admittedly I’m not an Irish actuary and I don’t know the Irish market, but your expected claim rate would have to be mental to justify £4,500 per annum. And on a 1.1 Civic, I’m not buying it without some evidence. Are you sure?
When I was 22, I had a 2 litre coupe in North London insured for less than £1,500. And I’d had an accident the previous year. Admittedly rates were slighly softer then, but not significantly so. I was quoted as high as £5,000 mind you, but eventually found the price I was looking for. I advise you shop around.
horhay - if you believe that no effort is going into looking at alternatives, you’re very sadly mistaken. We have software that allows us to crunch through millions of pieces of data, invistagating hundreds of potential rating factors at once. Research is extraordinarily active in this field. The insurance company that finds another decent rating factor would have a huge competitive advantage.
But the simple fact is that age is very correlated to claims amount.
Besides which, if we found another good rating factor we wouldn’t use it instead of age. Why throw away good data? No - we’d add the new rating factor to the myriad that we already use. Maybe rates would then become slightly less age-dependent. But there’s no reason to throw out something that already works.
I’m sorry that some of you are ideologically opposed to charging people a fair price for the risk they represent. I disagree with you.
(And for the umpteenth time: we already use experience as a rating factor - what do you think your no claims discount is? What’s more, we use it even more than is theoretically justifiable!. So stick that in yer pipes.)
pan
ps - thankyou very much Gaudere for fixing my coding screw-up. xxx
Aaargh! This proposal is exactly why those who haven’t studied insurance should leave it the hell alone
Horhay - you not only want to use one speeding ticket as a rating factor, you want to use it as a primary one. Well I’m sorry, but one speeding ticket is a rubbish predictor of risk.
The position I don’t think that you’re appreciating here is that insurance companies have as their objective to price your personal insurance perfectly according to your personal risk. They will use whatever data that they can to do this.
If they could have a little pixie with you at all times who would grade your entire driving ability, along with noting how much you drove and under what conditions, they would. But they can’t, so they must do the best they can.
Please - don’t you think that if it was as easy as counting speeding tickets, we’d have thought of it? It’s not a very complicated notion after all. If you want to use speeding tickets as a rating factor, you need to collect as much data as possible an perform a multivariate analysis to compare correlation of speeding tickets with annual claims. This tells you how much weight you can give the data. And I can assure you that it is nowhere near the level of increasing a premium by 20% the first time somebody gets one.
And what’s all this about reducing everybody else’s premium at the same time?! :eek: What - have they suddenly become better drivers or something? Assuming that the speeding ticket is a good predictor of risk, all it tells us is that the driver who received it is even more likely to have a crash than previously thought. That means that the total risk for the group is higher than initially believed. Which means that we need to collect more premium. $300 is no longer enough to cover this group’s risk.
You’re assuming a zero sum game, where the total level of risk never changes. The real world doesn’t work like that.
Insurance should be about identifying an individual’s risk and pricing his or her premium according to that risk. We do the best we can, honestly. We haven’t got a crystal ball. Your age tells us a lot about your likely driving habits (NOT just “how good a driver you are” as I’ve already said three times now). It’s one of the pieces of information about you that we can use to guess at your risk. As we build up experience of you, your premium will be adjusted with no claims discounts if you don’t claim. But when you first join, we don’t even have any experience to work with.
And as I’ve noted, your personal experience doesn’t mean much for ten years or so anyway, by which time your driving habits will be different. Claims are too rare for us to get much meaning out of one individual’s three year history. So, frankly, be thankful you get the level of NCD that you do.
Some of these points I’m making for the fourth or fifth time. I appreciate that it can be an emotive subject to feel that you are “discriminated” against. Further, I appreciate that some of these concepts are complicated and it is easy to think that you’ve grasped it when actually you haven’t. But I implore you to recognise that insurance companies are about identifying your risk as best they can. Your suggestions of “how good a driver am I?” and speeding tickets are duly noted but there are problems with them - namely that they are subjective or lack statistical credibility due to scantyness of data. We use the data that has an impecible track record of actually predicting risk. And one of those pieces of data is age.
Kabbes–I know that one speeding ticket is not a good predictor of risk. Look. Insurance companies in the US are making FAR TOO much money. Based on your "risk factor’s” insurance companies are making a profit off of every dollar that they get from their premiums. Look at this Progressive Insurance website:
They made 6.6 cents from every dollar that they received in premium payments!!! That is ridiculous. That means that if someone is paying 100 dollars a month and they didn’t get into any accidents Progressive made an average $7920…off of ONE customer!! Now, if they have invested some of that money, assuming that not very many drivers are going to NEED 7920 dollars a year in coverage, they are making even MORE money. And to add to it, they can make even more money by making it seem like the large group of “low risk” drivers are getting a deal on their rates, while penalizing the small group of “high risk” drivers by charging them a lot more.
My point is, since most Americans are required by law to have auto insurance, the insurance companies should be more tightly regulated by the government so they can not use the law against the consumers to make exorbitant amounts of money. It would be different if insurance was an option and people made the choice to get ripped off, but since it is not I think that insurance companies should be limited in the amount of money they can make.
I know this goes against the idea that any company has a right to make as much money as possible in a free market economy, but being that insurance is not really a “free” market (since people are forced into buying it), they should not be able to tramp all over the consumer to make a profit.
One more thing. Since insurance is regulated by individual states and not the Feds, and since insurance companies are private businesses, the states are scared to make any drastic limits on insurance company’s because they could just refuse to insure people in that state. Bottom line is that insurance companies can pretty much do whatever they want, because they have the right to deny service that is required by law…and that’s not right.
Now, back to my idea. If insurance profits are regulated, and in my hypothetical example they would be set at 300 dollars a month, There is no reason why they couldn’t adjust the rates to guarantee that they make the maximum profit allowed without discriminating against age.
Perhaps you’ll feel better to know that in fact if someone is paying $100/month ($1200/yr), Progressive made a whopping $79.20 profit. And a 6.6% profit is not excessive. Insurance companies aren’t non-profit organizations.Most businesses look for more than that.
The only value of this thread any more is for entertainment purposes as there is no hope that horhay will ever see the light. Horhay, have you tried applying for the post of CEO of some large insurance company? You seem to have great confidence in your qualifications.
Talk about fuzzy math! I am not going to waste too much time on this nonsense. If you think insurance is a good investment you have it easy: buy shares of insurance companies. They are owned by investors, people like you and me. You can be an owner and participate in the “ridiculous” earnings! Ain’t capitalism great? Horhay, I can take my money to the bank, invest in in CD and get 6% while I sit at home watching porn. 6.6% is a meaningless figure and we would have to analyse much more but, in any case, it does not seem unreasonable or “ridiculous” to me. If next year they lose money would you be willing to send them some out of your pocket just out of the goodness of your heart? No? I didn’t think so.
So let’s see where this thread stands… On the one hand we have horhay, who has absolutely no understanding of the insurance business, statistics or anything relevant except the feeling that this is unfair and it ought not to be so. On the other hand we have some people people knowledgable about insurance who all disagree with Horhay.
Horhay, people in the insurance business work hard trying to figure out the best way to do business and gain an advantage over the competition. They are people who have studied for years and worked for years in that business. They are thousands of them. Many are brighter than you and me put together. Don’t you think it is somewhat presumptuous of you to pretend to know more than them. Especially since you have no qualifications whatsoever?
