The thing that confuses me is the wild swings in prices between carriers. You'd think that the underlying underwriting strategies are fairly similar (convergent evolution, regulation, and likely everyone watching everyone else's behaviour).
The market is aggressive enough that there are ways to scrape and analyze your competitors' rates. Hell, Progressive spent years advertising that service explicitly.
So why will the same coverage on the same car for the same person vary by hundreds of dollars per year?
I'll just pull out the standard "hakfoo solves all the problems with civilization" hammer and say this should be a state-run monopoly. The math of insurance is based on having the biggest, most diverse risk pool to sop up any poor bets. Parceling out the population among different carriers works directly against that. Spending millions of dollars a year to remind me of your name and logo works against that. Needing have redundant C-suites and agent staff works against that.
I think there are two reasons for these "inexplicable" pricing differences.
One is that different insurance companies specialize in different things. For example, if you want to offer the best rates to good drivers, you might actually want high-risk drivers to go somewhere else, or at least compartmentalize them so that your prime clients can still pay favorable rates. But if you do that, another company will show up and specialize in the customers you're walking away from. There's enough competition that no single firm can have it all, and there's definitely a lot of divide-and-conquer going on.
I also suspect that there's a multitude of ways to end up with a specific risk profile, so there's plenty of more or less random divergence on the tail end. Some insurers get where they want to be by giving discounts if you install a monitoring app. Others if you're in a "safe" profession. Etc.
> The math of insurance is based on having the biggest, most diverse risk pool to sop up any poor bets.
Sort of? Sometimes? There are diminishing returns, especially for car insurance where claim limits are fairly modest - I doubt it makes much of a difference if you have ten million versus a hundred million customers. A state-run monopoly has a comparatively weak incentive to make the math work, because it can always count on being propped up by the taxpayer - and if not, it can charge you more or offer worse service, and you can't do much about that.
Private monopolies share some of the same problems, so I wouldn't root for either. Thankfully, the car insurance market in the US is pretty competitive.
The problem with state run monopolies is that without competition they are rarely effectively managed. The obvious solution is to have multiple state run companies compete but then weve reinvented all the problems were trying to solve.
State run car insurance monopolies exist. Check out BC Canada. As a customer, it’s slightly more than I was paying in the US, but less than I would pay in neighboring provinces. There are some weirdnesses (have to renew/sign up in person through a private agent) and concessions to politics (insurance agents as mentioned, and senior citizens are guaranteed a discount regardless of risk profile).
It works, but it isn’t leaps and bounds better. It’s still possible for an accident that you aren’t at fault for to absolutely ruin your financial life.
I think ICBC is worse than the private options available in other provinces.
Auto shops are charging them through the nose to fix all these German cars that get in accidents, and then the premiums for those drivers never go up by any significant amount.
ICBC had a bunch of money they had collected from premiums, 800 million or so I recall, and the government took it from them to flitter away on whatever, so the surplus paid in insurance premiums becomes another form of tax, Instead of ICBC being able to reduce premiums or needing to compete to offer the best price
AFAIK the premiums we pay are lower than other provinces. I know that Alberta and Ontario are higher.
The BC liberals did loot the ICBC insurance pool of 1.2 billion dollars calling it ‘dividend payments’, which realistically should have been premium refunds. When the NDP regained power they passed legislature to
prevent this in the future, and ensure that ICBC operates as a nonprofit, which is why there were several premium refunds throughout COVID.
The unfortunate part is that ICBC doesn’t have a very complex premium structure. So you do end up with silly shit like a car with high cost of repair being insured for the same amount as a much cheaper to repair car. As a monopoly they are also required to insure all drivers no matter how bad the risk which means that we all pay to keep people on the road who should not be driving.
Not sure when you moved, but ICBC changed a bunch of how they calculate payouts in 2019. My insurance went down to slightly higher than US rates after that, but used to be way higher.
ICBC does do road safety campaigns, but it also handles vehicle registration and licensing as well as driver testing and licensing. I don’t know if any of that extra stuff is funded by insurance premiums or if it is all from taxes and fees.
> The math of insurance is based on having the biggest, most diverse risk pool to sop up any poor bets.
If I were running an insurance company, I’d want a pool of low-risk drivers, whatever my actuarial research showed that to be. Compete for them on price and, if forced to serve all comers, offer worse pricing for those my research shows to be higher risk.
USAA started on the premise that military officers were a good (low) risk population of drivers to insure.
I do not have enough experience to speak to this, but I have heard others in the auto repair industry complain about how insurers like Progressive are very cheap about replacement parts for damaged vehicles - opting for the lowest cost parts no matter the quality, instead of paying more for OEM parts. That might help account for some of the differences in cost between providers.
There is a pretty staggering difference in terms of how the different insurance companies pay out their claims -- everything from how they dictate services and hourly rates within their Direct Repair Program (DRP), and to the parent's point, where they set thresholds on the percentage of parts on a claim/repair which can be:
* OEM (e.g. genuine parts from the auto manufacturer)
* vs. Aftermarket (e.g. 3rd party clones)
* vs. Remanufactured (e.g. picked up from a salvage yard)
In general, higher-end insurance companies that charge higher premiums tend to want collision repair body shops utilizing majority or even all-OEM parts, whereas other "cut rate" insurance carriers typically try and get body shops to utilize mostly or all Aftermarket parts, some of which can have very questionable reliability.
My company has many clients in the automotive and collision repair industry, and we've even built a number of parts procurement platforms for the US and Canada markets -- in one of those applications, we specifically had a module that put in the DRP part allocation requirements for each insurance carrier, and to run reports for those carriers to show body shops that were in compliance vs. out of compliance with those requirements.
From the perspective of a private insurer, you do not want as diverse a risk pool as you can get. There are groups that you can reasonably anticipate are at high risk of being a bad bet. In many cases you want to encourage them to either change their behavior or seek an alternative provider. Either way, this looks like a high rate.
Telematics often makes it easier to figure out who those people are.
The appeal of diversity is to avoid systemic risks.
For example, I recall talk about some automakers offering insurance (often as part of an all-inclusive subscription model)
You'd have some very distinct systemic risks with that pool. If you had a Toyota-style sudden-acceleration crisis, or a Hyundai/Kia style theft crisis, you'd have a lot more exposure than a conventional insurer who accepted a broad range of models.
I'd expect there are other obvious systemic risks, like geographic limits (if you cover a wildfire area, you're paying more damage/loss claims), or restricting to some specific professions (which might track with specific damage patterns or vehicle choices)
Naively, yes, diversity avoids systemic risks. However, from working in auto insurance it was my experience that insurers reason about risk in considerably more sophisticated ways.
For one thing, in the US auto insurance is entirely a state-by-state market. This means that geographic diversity is inherently severely limited. Any auto insurance operation in California is going to be exposed to a lot of wildfire risk without the ability to geographically diversify. This is priced in.
For another, there some groups of people - remember auto insurance is really mostly about insuring people - who are statistically more expensive risks than other groups. Young men are measurably less safe drivers than middle-aged women, to pick an anodyne example. Individual premiums reflect this as well. I have no idea what kind of systemic risk would uniquely affect all middle-aged women across an entire state, but presumably you can think of one.
Most insurers have groups of customers they would prefer not to have. This is usually because the insurer cannot cover them at cost, never mind profitably. There's a series of ways they encourage those customers to find other carriers. This is where the idea of maximizing diversity breaks down most clearly - the overall risk pool is not improved by including these customers.
Driving risk is in a large part driving by driving behavior which is a characteristic that is under control of the individual.
Monitoring that directly and pricing on it is far more fair than pricing on correlated hard to change attributes like being male or being young or being poor (credit score)
Also it’s a lot creepier for companies to run a file on people and get all that and more info sent over rather than just getting sent over how the person drives.
In a great many cases, insurance rates drop. Sometimes quite sharply. I've seen as much as a 50% drop.
Auto insurance is inevitably surveillance capitalism. Insurers always look at aspects of life your life and behavior to establish your risk profile. Age, employment, the kind of car you drive, your driving record, and more all have a measurable impact on your risk.
Telematics mostly makes things cheaper for good drivers. It also sometimes gives insurers a chance to try to nudge drivers towards safer behaviors, both through direct messaging and through higher prices for drivers with higher-risk behavior. Whether this is a good idea or not is a personal question, though for my own part I tend to think that underpriced insurance for operators of heavy machinery is not a human right.
The market is aggressive enough that there are ways to scrape and analyze your competitors' rates. Hell, Progressive spent years advertising that service explicitly.
So why will the same coverage on the same car for the same person vary by hundreds of dollars per year?
I'll just pull out the standard "hakfoo solves all the problems with civilization" hammer and say this should be a state-run monopoly. The math of insurance is based on having the biggest, most diverse risk pool to sop up any poor bets. Parceling out the population among different carriers works directly against that. Spending millions of dollars a year to remind me of your name and logo works against that. Needing have redundant C-suites and agent staff works against that.