Monday, 28 August 2017

Safer cars cost more to insure

According to this recent Wall Street Journal article (gated):
New cars loaded with high-tech crash-prevention gear are having a perverse effect on car-insurance costs: They are soaring.
Safety features such as autonomous braking and systems to prevent drivers from drifting out of their lanes are increasingly available on vehicles rolling off assembly lines. Auto companies and third-party researchers say these features help prevent crashes and are building blocks to self-driving cars. But progress comes with a price.
Enabling the safety tech are cameras, sensors, microprocessors and other hardware whose repair costs can be more than five times that of conventional parts. And the equipment is often located in bumpers, fenders and external mirrors—the very spots that tend to get hit in a crash. Insurance companies, unwilling to shoulder all the pain, are passing some of the cost off to buyers.
Most insurers base their premiums on historical claims data. Essentially this involves assessing two components:

  1. The risk of accidents (higher risk groups pay higher premiums than lower risk groups); and
  2. The cost of enacting repairs (owners of vehicles that are more costly to repair pay higher premiums).
So perversely, while high-tech systems such as rear view cameras, sensors, autonomous braking, and so on may reduce the number of serious accidents, they actually increase the cost of those accidents. Fewer, but more costly, accidents seem to be leading to an increase in total cost of claims to insurers, which is being passed onto vehicle owners as higher premiums. And this effect isn't limited to the U.S. Here's more from the New Zealand Herald:
At the same time new vehicles were making up a larger proportion of all vehicles assessed and this was impacting claim sizes because of expensive technology, use of modern repair techniques and new vehicle owners having a greater tendency to claim.
"These are positive changes to safety which are embraced by the insurance industry, and should eventually reduce the number of accidents.
"However, in the meantime, the new technology comes at a cost.
[National portfolio manager private motor at IAG, Judith] Harvey told Radio NZ that for some people would could mean double digit increases on their insurance premiums.
An AA Insurance spokeswoman said increasing costs were being reflected in its premiums but increases would be gradual...
Twenty years ago a wing mirror could cost $70 or $80 to fix but now it could be several thousand dollars depending if it had sensors, cameras or a computer inside it.
And the trend is set to increase.
And one more, from Auto News, on why Tesla owners should pay more for insurance:
At least one major insurer, AAA-The Auto Club Group, is raising rates on Tesla vehicles based on data showing that the Model S and Model X had abnormally high claim frequencies and high costs of insurance claims compared with other cars in the same classes.
AAA said premiums for Tesla vehicles could go up 30 percent based on data from the Highway Loss Data Institute and other sources...
"Teslas get into a lot of crashes and are costly to repair afterward," said Russ Rader, spokesman for the Insurance Institute for Highway Safety, which is the Highway Loss Data Institute's parent organization. "Consumers will pay for that when they go to insure one."...
The rear-wheel-drive Tesla Model S is involved in 46 percent more claims than average, and those claims cost more than twice than average, [the Highway Loss Data Institute] said. 
So, before you go with the high-tech vehicle option, it may pay (literally!) to be prepared for an increase in insurance premiums.

[HT: Marginal Revolution, here and here]

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