No, no, it’s because you’re a 21 year old Irish male that we know you must be into high drunk rallying. Didn’t we already establish that?
pan
Ah, yes, didnt think of that factor.
Something strange to consider. If I drove across the boarder, my insurance would be cheaper.
Sorry. It’s me again. I have to bring up one last thing.
I understand that the insurers are trying to predict the risk of a driver getting into an accident, but why then do they raise the driver’s premium if he/she gets into an accident? To me that seems like the driver is going to end up paying for their claim out of their own pocket through higher rates. Especially if the driver has been paying premiums for several years without ever getting into an accident. So what about a system like this?
Right now any given insurance company should have enough money to cover a higher than expected percentage of their clients getting into an accident. If they don’t they are not really doing their job, because it is possible that a higher than expected percentage of their clients could be involved in accidents. So, with that cushion of money we should be able to initiate a new system. Let’s say a law is passed today that eliminates age as a factor in determining rates. Everyone pays the same amount, still using type and age of car as the rating factor. The insurance companies collect the premiums as usual and keep a record of how much each INDIVIDUAL has contributed. If one of their clients gets into an accident his/her rates go up enough for them to pay for their own claim, minus the amount they have already paid in monthly premiums.
For example, if someone has been paying 100 dollars a month for a year and they get into an accident that claims 2000 dollars damage they would owe: 2000-(12*100)= 800 dollars. So, their premium could go up to 150 a month for 16 months. The insurance company would still make money because everyone would be paying for their own claims, and the insurers would still be collecting the premiums of people who will never claim an accident.
The length of the rate increase would have to be determined by how much the person owes. If a person is involved in an accident while in a period of higher rates to pay off an accident, their rates will go up much more because they will have no premiums built up to help bring down the cost. But then again, if this person has caused two accidents in that span of time their rates should be higher, because they are a risky driver.
In the event that someone dies before he/she is able to pay off their full claim, the insurance company would adjust everyone’s rates accordingly at the start of the next year.
>> I understand that the insurers are trying to predict the risk of a driver getting into an accident,
Well, if you understand it you are doing a pretty good job of fooling me.
>> but why then do they raise the driver’s premium if he/she gets into an accident?
Maybe because past claims are a good indicator of future claims?
My back porch was damaged by a thunderstorm and the insurance paid and did not raise my premium. I guess they figure the risk of being damaged by another thunderstorm is still the same as my neighbor’s who had no damage this time.
My boat was hit by lightning and they have not raised my premium. I guess they figure the risk of being hit again has not increased.
On the other hand, if I ran my boat into another boat or into a dock, I guess they might take that as a clue that I do not handle boats as expertly as I claimed and my premium might go up.
>> Right now any given insurance company should have enough money to cover a higher than expected percentage of their clients getting into an accident.
Did you ever read a balance sheet? (Can you read a balance sheet?) You see the line that says “reserves”? Could you tell me what that means to you? You seem to be quite ignorant not only about specific insurance business but about business in general. Also, do you know partners of Lloyds are responsible with their personal wealth without limit?
>> If one of their clients gets into an accident his/her rates go up enough for them to pay for their own claim, minus the amount they have already paid in monthly premiums
Now you go to the other end. You fail to grasp the concept of insurance which is to have an assurance beforehand of the cost of doing business or of doing or not doing something. Insurance means I am removing the uncertainty from a project and fixing a cost which is otherwise uncertain. That is why companies trade in futures or why they insure for currency exchange.
What you are proposing is not insurance, it is a loan to pay out the claim and as you propose it would be meaningless because people have no commitment to continue to buy insurance from the same company. What you are proposing is feasible in a different way: You cause an accident which causes a claim against you for X dollars so, instead of filing a claim with your insurance company, you pay the claim out of your own pocket or, if you do not have the funds, you get a loan which you repay over time. You can do that. Nobody is going to stop you. Believe me. You can do it if you like.
Horhay, you’re whistling in the dark.
To expand on the idea of lowering insurance rates by making the insured pay the cost of the claim: You can lower your premium by choosing a high deductible.
The point of having insurance is fixing the cost and removing the risk. If you have no claims you are paying more than you are getting, if you have claims, then you get more than you paid. That’s the way it works. The problem is if you pay more than you get then you feel you are getting the shaft, but if you have a big claim then you say “hey, that’s why I had insurance!”
Now, if you are certain you are such a good driver that you are absolutely certain you will end up paying more than you claim, then you could try to self insure.
For now I have no health insurance because I am betting on my good health and careful habits. If everything works out well, I will have saved some money. If I get some serious sickness then I loose the bet. It is my bet to make and to bear the consequences. Over the last 15 years, even though I have paid a few thousand dollars out of my pocket in health care costs, I have still come out ahead. If tomorrow I have a heart attack, then I lose my bet. Most people prefer to remove this uncertainty from their lives and pay a fixed premium.
I choose not to have health insurance but I have my boat insured. It just shows you where I am willing to take a risk and where I sould rather fix the cost beforehand.
You don’t want to pay for auto insurance? You may be able to do it although it may be complicated as not many people would choose to go this way. Some states may have laws or regulations which allow you to post some kind of assurance or bond which would cover for any claims. If you do not have the half million dollars required to cover the risk, maybe your parents are willing to mortgage the house if they have that great faith in your being such a safe driver. If the law does not provide for this type of self-insurance, you could still do pretty much the same through a regular insurance company. You go to them and you say “Legally I am required to have proof of insurance but I an willing to self insure and I have here half a million dollars to prove it. I will put this money in escrow to guarantee I will cover any claims and I would like to ask you to issue me proof of insurance for the cost of only a small administrative fee.” If there were demand for this type of thing I can assure you it would be a product offered by the insurance companies. You can borrow the money from a bank. Of course, the bank now is doing exactly the same thing: they are looking at you with a magnifying glass and asking themselves “what are the chances this guy is really going to pay us back this money?”
You just have to convince somebody (the insurance company, a bank, your parents, anybody) that you are an extremely low risk and they should bet the house on it. Good luck.
Thought I would jump in here, to give my two cents and try to make sense of these arguments. First off, I am a 28 year old male, no longer paying increased premiums for being under 25 (thank God!) 
First, some agreements:
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I do agree that under 25 drivers have a higher risk factor for accidents, especially male drivers (I am one, and living in DC doesn’t lend itself to terrific driving practices). As shown my various insurance industry people, statistics even back this up, so this the age-risk factor correlation cannot be easily denied.
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I do agree that insurance companies need to make money, as all businesses do, and they should charge whatever they feel is necessary in order to make a profit.
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I do agree that age is but ONE factor companies use in order to price the rates they give a driver.
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I do agree that changing the insurance system to stop making under 25 drivers pay more than everyone else, WILL cause ALL drivers to pay more insurance premiums. (the money has to come from somebody)
Now, some thoughts.
Do I think it is fair that ALL under 25 drivers (especially males) have to pay more? NO WAY!! I really thought it sucked when I was under 25, but now, my enthusiam for changing this policy has waned
*** Before i hear about “insurance company profits…statistics…blah blah blah” I meant, to me, PERSONALLY, I don’t think it’s fair. Fair to me is everyone paying for their OWN PERSONAL risk, not the risk of the age group they happen to be in at that time.
*** Again, I don’t want to hear “statistics…too hard to measure individual risk…blah blah blah”. I am talking theory, not actual practice.
Do I think it is fair that I am charged more for a Denny’s breakfast than a senior citizen?? No on that as well. But I am sure I will appreciate it more when I become a senior citizen, so I don’t bitch about it now.
It seems to me that the “insurance company” side is based on not losing money, higher claim rates, what have you. My question to you people is personal, do YOU think it is fair for ALL drivers under a certain age to pay for the rest of the drivers in their age bracket? I mean YOU personally. No stats, no profit margins…etc.
bottom line is, in theory it would be great to charge safe drivers less, regardless of age, but in practice, it becomes difficult to determine someones personal risk BEFORE THEY START DRIVING, so the insurance company must use SOMETHING in order to determine risk.
I think the race issue with regards to insurance is on the order of “If there were statistics showing African Americans were in more accidents, would African Americans be charged higher rates?” Well, would they? And if they were (and race was just ONE of the factors used to determine risk), would this be discriminatory? If so, why not age? If not, why not?
Also, I have to disagree with the statement by Kabbes:
What do you mean by this? There are statistics all the time about percentage of crimes committed by whites, blacks, hispanics. Statistics about loans to whites, blacks, hispanics. Why can’t there be statistics about accidents by blacks, whites, hispanics?
my thoughts, thanks for reading
Mike
Mike - when compiling a report, one can make a subjective judgement as to whether an individual is black, white, hispanic, innuit etc. Sometimes accidents are included as such - december referred to such earlier. However that subjective judgement used for these reports is not good enough for an insurance proposal form. I say again - how black do you have to be before you are black? One parent “black”? One grandparent? But then how do you define whether the parent is black? Or do we measure skin colour against a Dulux colour chart and assign a number from 1 to 10?
I’d like to put this race thing to bed, frankly. “Race” is by its nature very subjective and subjective measures make for astoundingly poor underwriting factors (unless you can send an expert underwriter to every single proposed risk, such as for space or freighter insurance; something that isn’t possible for motor insurance). This is not up for further discussion - I feel I’ve explained it more than enough already.
As for how I “feel” about not being “fairly” treated - I’ll say this: I accept that an insurance company doesn’t know me, has no way of knowing me and that even if they did, “knowing me” wouldn’t be an objective way of assessing my risk. Furthermore, they wouldn’t just need to know how “good” I am at driving, they’d also need to know all my driving habits and under what conditions I drive (for the fifth time). As such, I accept that I am being treated no differently to anyone else, which is as fair as I can ask for.
I choose to comprehensively insure my car, since I don’t want to absorb the impact of the claim myself if I write it off. I’m paying for a service and I consider the price acceptable. What is more, people are incredibly bad at assessing their own risk (as evidenced by horhay’s naive worry that he only has to worry about $2000 damage - what are you going to do when you cause a $1 million liability claim in a freeway pileup, horhay? How much extra premium is that going to cost you?) As such, I don’t think that as an individual I’m even particularly well placed to decide what a subjective “fair” price actually is.
So I’m sorry you don’t feel that it is PERSONALLY fair mike (whatever the hell that means). If you ever discover the secret to magic driving-assessment pixies, you be sure to let the motor insurers know and they’ll be only too delighted to use them - after suitably testing their ability to predict risk, of course. In the meantime, we’ll just have to accept the mean ol’ insurance companies unfairly charging us ALL extra money for those apparently invisible people (never us, of course) who cause higher than average claims.
pan
TexasSpur, I am a young male, and, (knock on wood) have never had any tix or accidents. Also, I do not drive recklessly. Why should I have to pay the same rates as some careless idiot? How can you generalize like that?
By the time you are old enough to drive, PERSONAL CHOICE outweighs the “societal phenomenon” you describe, and just because of my age, I don’t mindlessly floor it at every light… just because you’d expect me to, does not make it so.
I see evidence of age discrimination all over the place, but whatcha goin’ do? Doesn’t make it right, though.
Good Lord - it’s like the last three pages never happened.
Acco - it’s not that the insurance company is convinced that you personally are going to crash. It’s just that they have no way of knowing you personally. Therefore they have to assess your risk to the best of their ability and as objectively as possible using what they do know. One of the things they know is that age is a good predictor of risk - so they use that knowledge.
If you personally are overcharged because of this then I feel for you, but until a way is established of further refining risk assessment we just have to do the best we can. Unless you feel that you should also pay the same as the guy in the brand new Ferrari too.
pan
>> TexasSpur, I am a young male, and, (knock on wood) have never had any tix or accidents. Also, I do not drive recklessly. Why should I have to pay the same rates as some careless idiot? How can you generalize like that?
Can you tell us how the insurance company can tell the difference between someone like you and the average youth? Do you think asking you to check a box (are you / are you not a responsible driver?) in your application would work? I don’t think so. If they knew a valid way they’d do it. The point we are trying to make all along is that they are doing the best they can to assess individual risk. If you can think of a better way let them know. But you cannot just complain and say it is unfair and propose no solution.
And for the hundredth time: age is but one factor. If you are married, female, live with your parents etc you will get lower rates. Age is one factor in many. Should everybody pay the same premium? I am a guy and I have no choice or conytrol over that. Why should a woman pay less than me? huh?
A woman shouldn’t pay less than you.
:rolleyes:
I’m right. The last three pages haven’t happened.
pan
Can you tell us how the insurance company can tell the difference between someone like you and the average youth?
The insurance companies should be trying to tell the difference between you and the average driver, not the average youth. My friend’s dad drives like a maniac and he is in his 50’s. There is no doubt in my mind that he is more of threat on the road than I am. I am sure he drove like a maniac before he was 25 too, but he managed to get lucky and not cause any accidents. Why should his rates have gone down when he is clearly still a dangerous driver…just a very lucky one.
Someone said earlier in the post that it is fair to charge younger drivers more because everyone starts as a younger driver, and therefore, everyone pays the inflated rate at the beginning. Wouldn’t it also be fair then to spread the risk of the younger drivers over the whole group, because everyone starts as a younger driver, and therefore,
everyone goes through the same period of high risk?
A younger driver who is involved in an accident gets double whammied because their rates are already higher, plus they will go up, but a younger driver who is never involved in an accident gets to slip through to lower rates even though statistically they posed the same threat.
No, they no longer statistically pose the same threat, because the insurer has additional information about one of them - he has been in an accident. The additional information makes it clearer that the first driver is a high risk, therefore his rates go up. (But they still go down some amount when he turns 25). I fail to see a “double whammy”. Besides, wasn’t raising rates on the basis of driving record the part you liked?
I figure kabbes and sailor must be getting tired of this, so I’d step in. Note that everything I say is based on what I’ve read in this thread.
And you know what one of the big differences between younger drivers and the average driver is? Age! You know, one of those significant predictors of risk that kabbes keeps talking about.
And how is the insurance company supposed to monitor this? Pixies? If he hasn’t caused any accidents, then he’s not seen as a significant risk. If/when he causes an accident, that will change.
**
No, it wouldn’t be fair. A person’s premiums should be proportional to the risk they pose. Fair does not mean equal.
**
Note the use of the past tense (“posed”) here. This is a scenario in which new information is being gathered; premiums are revised as a result of it.
What I am saying is that from the age of 16 until they are no longer able to drive, every driver passes through every risk group, which means (not counting accidents) that every driver statistically poses the same threat. So the only way to fairly charge different premiums is to base it only of off driving record, because only the people who are involved in accidents are statistically more of a threat. And they are only statistically more of a threat once they are involved in an accident.
They are already spreading the risk of the young driver…and every other driver for that matter. THat is what insurance in this sense is.
Now if you do not like the premium quoted for a guranteed cost deductible program, you could try a number of alternative risk transfer devices such as self insured retention, contractual transfer through, say, borrowing a car or car rental, or a self insured retention with a per claim or basket aggregate maximum.
But what you want is to pay $1600 for $500,000 worth of coverage with a very small deductible. That is a pretty good deal if you kill someone…but a real bad deal both for the carrier and everyone else who pays higher rates. As it is, older drivers and safe drivers pay for those who are younger and those who are reckless ( the wreckless pay for the reckless.) That is what (auto) insurance is. You are paying to tranfer risk.
Everyone may live in a wood house at one time or another. THat does not mean that people living in brick houses should be charged the same for fire insurance as those who live in wood houses.
Well, “fair” is a very subjective concept and I do not think it is good for the government to be trying to make this a fair world. The way I see it, it is very unfair that I do not get a chance to sleep with Sandra Bullock. Should we pass a law to correct this?
Suppose the government mandates age and sex cannot be taken into consideration when setting premiums. The first effect is that some higher risk drivers who were kept out of the pool, can now afford to enter it, raising the claim rate. The second effect is that some of the safer drivers cannot afford the higher rates and are forced out of the pool (how’s that for fair?). So now we enter a spiral: more high risk drivers enter, this raises rates, so some low risk drivers drop out which raises the risk higher…
The government should only restrict people’s freedoms when there is an overriding and compelling common interest and I do not think this is the case at all. In fact, there is an interest in not doing such a thing.
If government were to outlaw all commercial preferences based on age and sex, besides the problems already directly caused by that policy, we would now have a whole new field for the government to police, a new agency in Washington to supervise the whole thing… in the end everybody’s rates would go up.
The fact that something is unfair (however you may want to define it) does not mean it should be changed. You first have to prove the alternative you propose is a better one and you are failing by a very very wide margin.
Horhay, you seem to have the thought that insurance companies have something personal against young people. They are offering a service the best way they can. If you think you can do it better then you should start your own insurance company.
“Everyone may live in a wood house at one time or another. THat does not mean that people living in brick houses should be charged the same for fire insurance as those who live in wood houses.”
This is different. It is a fact that the material that a house is made of will determine how much damage is done to the house. It is not a fact that if you are under 25 you drive recklessly, it is a generalization. What is a fact is that if you drive recklessly you are more inclined to be in an accident.
“They are already spreading the risk of the young driver…and every other driver for that matter. THat is what insurance in this sense is.”
Would you agree that every driver, throughout their entire driving career, passes through the same age groups?
So if each age group has a statistically determined chance of being involved in an accident the total chance for each individual is the same in the long run. So, just as insurance companies can say that everyone under 25 has such and such a chance of being involved in an accident, they could just as easily say that every driver has such and such a chance of being involved in an accident at some point during their driving career. Only once you have caused an accident does your risk go up because past performance is a good predictor for future performance. So, if they are spreading the risk of every driver, why do younger drivers have to pay more when their lifetime chance of being involved in an accident is the same as anyone else’s?
Insurance companies could spread the risk evenly throughout all their insured drivers (using type and age of car as a factor), and still make the same amount of money. It would seam more fair to me though because everyone would have a chance to determine their rates by driving carefully.
horhay - each insured party may pass through those ages (although not all - some don’t get their licences until later and others stop driving for whatever reason, but I digress). However they don’t do it with the same insurer. As I said, motor insurance is very competitive. As such, customers tend to change insurer every few years. Now if that insurer has been charging cheaper rates to the younger person then they’ll never get their money back as increased rates in future years because they’ve lost their business.
What you’re proposing would only even begin to work if everybody was legally forced to have the same motor insurer throughout their whole driving life. And even then it would have the problems I’ve already identified.
Interestingly enough people don’t tend to change their medical insurer in the UK. As such there is some (small) level of cross-subsidy accepted in medical insurance here. If the market in medical insurance ever gets more competitive however you can be damn sure that the cross-subsidy will be dropped faster than the proverbial.
And thankyou those of you that have stepped in. I’m just about tired out with explaining the same points over and over.
pan