Only a few things to add to sailor’s and doreen’s nicely explanatory posts: that 6.6% includes the interest the insurance company has made on it’s investments (strictly on it’s technical reserves actually I would have thought, but I don’t want to cloud the issue).
Investors require a certain return as compensation for investing in a risky asset. 6.6% is actually rather low for such an inherently volatile investment, I would personally have thought.
Also, in the UK at least, motor insurance have been losing bucketloads of money for about 5 years now. december will know how “hard” the US premiums are right now, but your insurance cycle is similar to ours so I’d be surprised if it were too different.
And are you sure that the 6.6% quoted isn’t a result for the whole insurance company, rather than just their motor account?
One final point: “insurance” is not reuqired by law. Third party liability insurance is required by law. If you choose to have a fully comprehensive motor insurance then you are exceeding the legal requirement.
Not that any of your last post has any particular relevance to the fact that an insurance company is seeking to identify your personal risk as best they can, which is as fair as anyone without psychic powers or magical pixies can be.
Can’t you avoid having to get insurance by just proving to the state that you have several thousand dollars reserved for covering any injuries you cause? I remember hearing about that somewhere, but I can’t find it on my state’s web site.
I wouldn’t have thought so. You’d need several million dollars to cover the more extreme claims you might cause.
For those who are interested: in the UK (and EU I believe), you have to apply to the government for the right to sell insurance, and you have to do this separately for each class of business. So I have to apply for the right to sell car insurance and home insurance separately.
Regulation covering the insurance industry is extensive.
Many large companies do, however, insure themselves. They do this by setting up a “captive insurer” that exists (primarily) to insure the parent company. These are sited off-shore to take advantage of tax breaks.
Mr2001, you’re in essence wanting to set up your own captive to self-insure your driving. But to do that, you’d have to comply with all the insurance regulation involved. This means keeping a certain level of reserves to meet the minimum solvency margin and whatever other regulations exist in the US. You’d need a lot of money and the admin would be a bitch, but you could get certain tax breaks and you wouldn’t be losing money to insurer’s profits. But it would tie up your capital horribly. To avoid losing $50 profit to an insurance company, you’d need to isolate a lot of money, which then couldn’t be used to invest as you’d see fit. Unlikely to be worth it.
But an interesting thought.
If you’re seriously interested in this, then just get third party liability insurance (the legal minimum). THis would essentially then be self-insuring any losses to your own vehicle.
I have filled in the motor insurance form at http://www.quinn-direct.com and filled in the form for Axa insurance.
I answered as honestly as I could, getting Comprehensive insurance as the only driver on the car, a 1.1l Honda Civic from 1997. The car would be parked in my driveway at night, and on the street during the day. I have no “no claims bonus”, 0 years driving previously, 1 year with a provisional licence.
I got the following results.
Third Party Fire & Theft Not Protected IEP£7,451.14 £1,600.38 (deposit)
Comprehensive Not Protected £9,956.09 £2,138.34 (deposit)
I am awaiting the quote from AXA.
Actually the amusing part of the thread is watching sailor’s pig headed refusal to see that there is validity in the complaint. He is the one who doesn’t understand the statistics.
There are extremely good reasons for grouping people the way that insurance companies do. Insurance companies don’t need nefarious motives to use catagories which allow them to do business in a predictable and profitable manner. Actuaries do recognize that there is inequity in the rating system but take the not entirely unreasonable position that it is the best they can do.
Other countries have taken steps to reduce this problem which may or may not be workable in the US. People are not young and naive simply because they do not accept your position, sailor.
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.
Sailor–I have NO CONFIDENCE in my qualifications to be a tight ass suit. Nor would I want to be involved in a “business” that rips people off. In the United States the insurance companies HAVE TOO MUCH MONEY. Some of the more profitable ones have enough money to lobby and influence the government to vote for, or against, proposed laws in a manner that favors their business. This is especially evident in the current health care system in the US, but the same applies in auto insurance. Included in “lobby to influence” I am sure there are some direct payoff’s going on. So, in effect, the insurance companies already have enough money to buy the laws that they have to play by. That’s not right. Sure, some smaller insurance companies might actually lose money and go out of business, but their clients will be picked up by a bigger insurer which just perpetuates the problem of insurance companies having too much power.
If the government were to step in and eliminate age as a factor in determining rates maybe the insurance companies would take a step back for a second and say, “O yeah, we really do not set our own laws.”
Ah, I see now. The truth has little to do with actual fairness or otherwise of the method of premium rating and rather more to do with your dislike of large companies who dare to make money.
Please forgive me - I was attempting to actually engage in impartial discussion. I didn’t realise that there was an ideological objection to profit underlying this.
Incidentally, even if insurance companies were not-for-profit, they would still want to discriminate by age in order to eliminate as much volatility and price as fairly as they can. Profit has nothing to do with this.
Kabbes—The reason I began thinking about the age discrimination is because my rates were too high for me to pay. The reason my rates are to high for me to pay is because the insurers can charge as much as they want. So, your last post is partially correct, but its not that i have a problem with large compnaies making money. I love Coke, and McDonalds, and I have no problem with Microsoft, or any other large company. My problem is with insurance companies wanting to charge me $300 dollars a month for my insurance just because they can. Insurance doesnt operate on supply and demand like other large companies. It operates on demand alone, and therefore can charge as much as they want.
>> Insurance doesnt operate on supply and demand like other large companies. It operates on demand alone, and therefore can charge as much as they want
This is pure nonsense. There are plenty of insurance companies to choose from and they all want your business. If one felt it could lower their rates and still make a profit they would do it in order to take customers away from their competitors.
This argument was like Doreen saying that women are forced to pay unfair prices for their dry cleaning as they have no choice. As long as there is competition (and I will remind you that any collusion to set prices is very illegal) you can get the lowest price for which there is anybody willing to provide that service. If this were not so, some other company would come into the field and offer that service at a lower price. If prices are what they are, I would suspect there’s a good reason for it.
To repeat to the nth time: insurers identify risk as best they can. Youth is a valid objective indicator of risk as are many others. If a youth is included in his family’s policy and they have a good record, he will pay less than if he gets his own policy. My guess is that the insurance company has figured this is a good predictor of risk.
horhay thinks it is fair that I should pay part of his premium. I think this is not fair. I have better plans for my money. I think if anyone should subsidise horhay it would be his parents not me. That’s just the way I feel.
horhay - simply, motor insurance is one of the most competitive industries of them all. Just because a motorist must have insurance doesn’t mean there isn’t a supply-side factor at work. As I said before, in the UK nobody has made any money on motor insurance for about five years. If they could charge what they wanted, don’t you think they’d rectify their losses?
There are a lot of motor insurers out there and they all want to attract your business. Shop around - it makes a big difference. The reason that motor insurance is so competitive is that there is really nothing to differentiate one product from another other than price, so insurers are trying to outdo eachother on price.
Incidentally, if (as by your own admission) you don’t know anything about economics, I think that it is a bit rich to come on here and start quoting “supply and demand” to those of us who actually do know the subject. Especially when you’re talking such abject bollocks about it. Are you not simply embarassed to do so?
While I admit that I went for the more dangerous options of being the number one driver instead of a named driver, and not having any driving history (in a car that is, I’m very good on the road on my Scooter), you must surely agree that it is too much for a 21 year old to afford.
If I was a named driver on the car, my insurance would be down at around £4,000.
As I said before, I just cannot afford to drive.
Thats not to say I think its unfair. Insurance companies will charge what the market can afford to bear. The problemn in Ireland is that there is no competition for these companies.
No. Not at all. I could care less what you think about me based off of my posts on this bored. Kabbes–I noticed on your profile that you are an actuary, yet in one of your earlier posts you say that you are trying to “engage in an impartial discussion”. It’s pretty hard to be impartial when you are defending the industry that employs you. Maybe the reason you are so reluctant to admit that insurance companies do not need to discriminate is because you’d be out of a job without it? Or maybe you don’t want to admit that you sit there and crunch numbers all day for no reason. Whatever the case YOU are far from having an impartial discussion.
Not at all horhay - I’m employed by an insurance consultancy; we advise the insurance companies on what rates to charge, what reserves to hold, strategic decisions, things like that. I have no vested interest in insurance companies making lots of money per se - we’re not actually in the business of selling insurance at all. My job does, however, mean that I am directly responsible for analysing motor insurance data. So, unlike you, I do actually know what I am talking about.
And I think you mean couldn’t care less. Unless you actually do care what I think about you.
Twisty - I wouldn’t hold your breath for AXA; they notoriously don’t like insuring younger drivers.
You might want to try Bell Direct, who are quite good at insuring younger drivers. Try this form, which gives you a quick ballpark quote after ten questions, and tell me what it says. I’m genuinely interested.
This must be some usage of the word “impartial” with which I am not familiar.
Speaking as a young person (21, well below the age at which my insurance premium goes down) with a reasonable background in statistics, what Kabbes has been saying makes sense. He has expert knowledge–why won’t you acknowledge this? I’ve been reading this whole thread, and I’ve been trying to find some substance in your arguments, but they really seem to boil down to your feeling that you ought to be getting a better deal. I don’t like the fact that my premiums are higher now than they will be in four years, but I can understand why, especially with the lucid explanations that Kabbes has given here (repeatedly, I might add).
Lest you think he’s blindly defending his employer, let me observe that actuaries, who have a fairly broad technical background, do have other options for employment. So it’s not like any of them would be out of business if the insurance industry folded.
Oh, for Christ’s sake. kabbes very first post in this thread started with the words “Insurance actuary weighing in.” You just now noticed it in his profile?
Since logic is also probably one of the courses you haven’t had yet, horhay, I’ll help you out here. Attacking the person making the argument instead of the argument itself is called an ad hominem attack. It counts as hitting below the belt, and is usually seen by experienced debaters as a sign of the weakness of your own argument. It’s about as convincing as bursting into tears and saying, “well, you’re just a big poopyhead who’s being mean to me.”
Further, he doesn’t “crunch numbers all day for no reason.” He crunches numbers because that is a requirement for any of us to be able to obtain the extremely important benefit of insurance. He is also an expert in the topic you are complaining about, and has been remarkably good-natured in his attempts to explain it to you despite your refusals to listen and your lack of necessary basic areas of knowledge. (So far I have restrained myself from pointing out your numerous typos, because they are external to the debate. At least you’re using a spell checker. But lack of knowledge in the actual area of discussion, when coupled with both a resistance to learning and a forceful explication of an uneducated opinion, is simply unforgivable).
Twisty - :eek: Do you live in a war zone or something? I thought you lived in Dublin, not Portadown.
I’m staggered, but at least I can use this to illustatrate a very important point: in this case the “location” rating factor far outweighs the “age” rating factor. Same person, same age but less than a third of the price to insure in one location than another.
Shall we all start moaning about the unfairness of location discrimination now?
There must be a lot of accidents where you live Twisty…
Here’s another illustration of why your “averaging” method doesn’t work horhay. It’s all to do with the mix of business.
Suppose you insure ten people: five are aged 20 and would have insurance of £1500 p.a. and five are aged 30 and would have insurance of £500 p.a. You propose that we charge everybody £1000 p.a.
So this we do. And then a 30 year old leaves our business and another 20 year old comes in.
Now theoretically we should be charging everybody £1100 ((£1500 x 6 + £500 x 4)/10). However, since we aren’t using age as a discriminator, we don’t know this so continue to charge £1000. We will make an expected loss of £1000, or 10%.
Basically what I’m telling you is that mix of business is fluid. We can’t find an “average” figure and stick with it, because that average won’t be appropriate next year. Every time a new risk joins our books it affects that average. So what do we do? Ask all our policyholders for a little more money, because a riskier than average policyholder wants to join?
That is why you have to gauge each individual to the best of your ability and charge them according to thei theoretical risk. If you don’t then your premiums will become very inappropriate very quickly.
Here’s an even more dire scenario: suppose there are two firms as I described. They are each charging £1000 p.a. to all their customers.
Now one 30 year old, for whatever reason, decides to switch from company A to company B whilst a 20 year old goes the other way.
Now company A’s “average” premium is £1100 whilst company B’s “average” premium is £900. Everybody now switches to company B at £900. Company A goes out of business whilst company B makes a 10% loss.
