I would just like to make an observation/suggestion regarding auto insurance. It seems to me that it would be reasonable to expect that insurance companies, on a state-wide or nationwide scale, to issue partial (i.e. 50-70%) refunds (for a given period, as mentioned later) to customers who do not submit insurance claims over a certain period of time, say 5-10years. For example, a customer such as myself pays about $900 every six months for auto insurance that is required in Michigan- in five years that is an investment of $9000 with zero value for me, the consumer. It seems that it would make sense to refund part of that premium to customers who do not actually make use of the insurance company’s services. Also, in the given period that the insurance company has these funds, they will be making interest on them through their investments, so it will not be such a big blow to them. In the 13 years I have been driving, I have never once gotten into an accident and never made an insurance claim. Therefore, the estimated $20,000 dollars that I have spent on insurance in this period has been a complete waste of money. This money could have been used to pay for my college education, to which I still owe $13,000 in student loans. This could be used for countless things- all better than making the CEO’s and executives of insurance companies richer while I struggle to make my house payment every month. :mad:
What do you guys think? Think it would be the downfall of insurance companies?
I think you are missing the big picture here. If you did get into an accident and it cost $100,000 dollars in medical bills, to fix your car, etc. Where do you think that money comes from? They don’t save your money in a Scrooge McDuck valut and earn interest on it until you need it. They take the money that comes in an send it out against current claims. Like Social Security. The trick is evaluating the risk so claims do not exceed the incoming cash. Quite simple really.
Now, don’t get me wrong. I also hate insurance companies, but my area of complaint is how they generally assign risk to broad catagories of people and they don’t utilize personal factors enough when determining your rate.
So in effect those of us who do not get into accidents are financing the claims of those who do? Socialist? Welfare? Somehow I think auto insurance should be made to be more like certain types of life insurance- to make it resemble a sort of investment, such that even in the event that the insurance is not used there is some sort of value for the purchaser.
Which would mean that those who do use it should pay more. In effect negating the reason for insurance in the first place. To carry your example to the logical end we should eliminate all insurance and require each person to pay (or not pay) for accidents / liabilities.
It is all about spreading risk over time and a large pool of people. slu’s explanation above is dead accurate.
Oddly enough they don’t do that because of government regulation and out of fear of lawsuits. With no threat of lawsuits or government regulation they might lump you in with the three other O positive, 33 year old, diabetic, italian, left handed, red haired, non smoker, scuba divers for coverage.
Ah well yeah you are, that is what insurance is. A sharing of a risk. Comparisons to life insurance don’t really apply here. In life insurance the risk goes up as a person gets older. Think about it, an 85 year old smoker has a much greater risk of death than a 35 year old non smoker. Whole life insurance was set up so that a person could pay a set premium for their whole life rather than an ever increasing premium. This level premium created the saving component that you mentioned.
With auto insurance, the risk is not based on the age of the car, but rather the exposure ie how the car is used. Driven by an adult less than 7,500 miles per year, low rate. Driven in the course of business over 30,000 miles per year higher rate. Driven by a 16 year old male with a 3 day old license a very high rate.
[hijack] What the hell are you driving and what is your record like if you are paying $1800/year? My 24 year old son pays less than that in LA. [/hijack]
You hit the nail on the head. People are too senstive about being “classified”, but if classification like you said above made the rates more fair, then I’d be all for it. I personally think that there should be more specific classifcations rather than sex, age, marital status and driving history. And I think driving history should be the most important by far. Hell, it you could prove statistically (with a meaningful sample size) that 27 year old white males with type O blood that play guitar and work in Web Development with no accident history have a lower risk of accident than those who don’t play guitar, then I am all for it!
This “share the risk” is pretty much the case with all ‘grouped’ things.
Those of us whose house does not catch on fire subsidize the fire department and city fire hydrants and the homeowners insurance for those who do have house fires (largely smokers).
Those of us how do not fall off ladders or run over our foot with lawn mowers or have heart attacks subsidize the ambulances and EMT’s and hospital emergency rooms for those that do those things.
Those of us who sit at home and type on our computers subsidize the city parks & jogging paths & playgrounds for those who do use them.
And the biggest one, financially: those of us who do not marry and have kids subsidize the public school system for those that do.
All of these activities are paid for by all of us, for ‘the common good’. That is what we have decided to do, as part of living in an organized society.
P.S. On car insurance: about 1/3 of the drivers on the road have no insurance at all on their vehicles. And a good part of your car insurance cost is you paying to cover them (look at the item uninsured / underinsured driver on your bill).
So a good reform, that would make sure that everyone pays a share of auto insurance cost, would be the ‘insurance at the pump’ system, where insurance payments is included in the price of each gallon of gas sold. Then everyone would have at least basic insurance, and would pay a share of it.
But that would pretty much eliminate the need for the whole auto insurance industry, and all their sales agents and claim office workers, and their advertising budgets, etc. Given the political power of all them, it’s not very likely to ever happen here!
In order for a company to refund a portion of funds collected, it must collect the money from the customers in the first place.
Insurance companies already make distinctions in the charges between those with good and bad driving histories thur their premiums. The proposed method is just a variation that already exists.
Interesting enough, PlantMan, we all did get a refund for our respective insurance companies here in Michigan about 4 years ago or so. It was a redistribution from the state-run but mandatory-to-companies big claim fund. It had too much money. I think I got back $600 for my two cars I had insured then.
Also, you could buy insurance for a year – it’s a bit cheaper and a lot more convenient. I think mine’s $1200 for the year on a high-mileage-but-good-driver-expensive-car full coverage.