NickDanger
2,500+ Posts
As my car depreciates, shouldn't my premium to insure it decrease?
Car insurance
- Thread starter NickDanger
- Start date
WhiteH2O Horn
250+ Posts
Normally, yes, but it doesn't necessarily mean it will happen. In regard to what is happening with auto insurance rate revisions, the days of counting on your annual or six month renewal premiums to decrease based on vehicle depreciation are long gone.
Well, maybe your comp and collision rates would decrease, but why should your liability change? You're still driving the thing aren't you? You are still equally likely to be involved in an accident as you were last year, right? The prior question really goes to whether you are still in the same statistical profile group as you were before. Same age, still married/single, no new at fault accidents or tickets?
If so, why should your liability rate decrease? You represent the same level of risk to the rest of the world that you did last year, therefore, no change in premium.
If so, why should your liability rate decrease? You represent the same level of risk to the rest of the world that you did last year, therefore, no change in premium.
Maybe an actuary will answer this thread.
Assuming that the cost of body repair does not change substantially as a vehicle gets older, the savings realized to the customer/insurance company for insuring an aging car only occur for that percentage of the premium allocated for covering 'total' losses.
Either that or the insurance companies are just screwing the consumer.
Assuming that the cost of body repair does not change substantially as a vehicle gets older, the savings realized to the customer/insurance company for insuring an aging car only occur for that percentage of the premium allocated for covering 'total' losses.
Either that or the insurance companies are just screwing the consumer.
AustinTejasFan
1,000+ Posts
OK Nick, my Cliff Claven complex dictates I take a stab at this one. Let me qualify my response first by saying I'm a property insurance guy, not an Auto insurance guy, or a CPA, or an insurance actuary. I've just been around a long time.
When you buy a new car, it is assigned a numerical rating symbol based on its value. It also has another numerical rating element assigned to it called the model year factor.
During the first 3 years, your insurance company can adjust the rating symbol up or down 8 increments depending on market value and loss ratios for that auto. The model year factor should remain the same.
After 3 years, the rating symbol is basically locked in for the remainder of the vehicles life, but the model year factor should begin to go down annually. So, if all other factors remain constant, the premium you pay for that vehicle should steadily decrease as it ages due to the model year factor going down.
Now the catch 22. Of course auto insurance rates don't stay the same year after year. That's the rub, loss ratios, loss adjustment expenses, etc are not constant, so any given insurer may raise or lower its rates every year, thereby off setting the normal reduction in premiums you'd normally expect due to the model year factor going down each year.
That's why everybody should shop around for the best auto (and homeowners) insurance rates every couple of years.
When you buy a new car, it is assigned a numerical rating symbol based on its value. It also has another numerical rating element assigned to it called the model year factor.
During the first 3 years, your insurance company can adjust the rating symbol up or down 8 increments depending on market value and loss ratios for that auto. The model year factor should remain the same.
After 3 years, the rating symbol is basically locked in for the remainder of the vehicles life, but the model year factor should begin to go down annually. So, if all other factors remain constant, the premium you pay for that vehicle should steadily decrease as it ages due to the model year factor going down.
Now the catch 22. Of course auto insurance rates don't stay the same year after year. That's the rub, loss ratios, loss adjustment expenses, etc are not constant, so any given insurer may raise or lower its rates every year, thereby off setting the normal reduction in premiums you'd normally expect due to the model year factor going down each year.
That's why everybody should shop around for the best auto (and homeowners) insurance rates every couple of years.
NickDanger
2,500+ Posts
I wouldn't expect liability to change for the reasons stated.
I was just wondering this as I was drivingv yesterday and thinking about the fact that my '99 suburban is probably not worth insuring much longer. My insurance premiums never changed much at all while I was with GEICO and they haven't changed while with Liberty Mutual. GEICO didn't change at all when I traded two old cars for two new ones one year and I never stopped to think about the premium. Liberty Mutual is less than half GEICO for the same coverage btw.
Thanks for the explanation.
I was just wondering this as I was drivingv yesterday and thinking about the fact that my '99 suburban is probably not worth insuring much longer. My insurance premiums never changed much at all while I was with GEICO and they haven't changed while with Liberty Mutual. GEICO didn't change at all when I traded two old cars for two new ones one year and I never stopped to think about the premium. Liberty Mutual is less than half GEICO for the same coverage btw.
Thanks for the explanation.
Sorry, Nick. Lots of people with insurance questions just look at the total premium without understanding what the different coverages actually do. I should not have assumed you part of the "uninformed masses". No offense intended.
NickDanger
2,500+ Posts
I didn't take any. I wasn't very specific in the original musing.
12thStudStan
250+ Posts
I'm not an actuary, but here are a few things I have read/heard on this issue.
If comp & collision coverage was on a replacement cost basis rather than for ACV (actual cost value) one would expect the premiums to continually increase as the replacement cost increases. With ACV, like we have here, one might expect the premium to decrease as the value of insured property decreases. That would hold true if the insured property was, for example, a collection of glass artwork where repairs are not a factor, but we are dealing with automobiles and most auto physical damage claims are not a total loss.
Think about it this way. If your premium was allocated based upon projected claims, the majority of your of your premium would be allocated towards those potential claims that involve repair rather that a total loss settlement. As mentioned the cost of repairing your vehicle as it ages does not significantly change, and so the comp & collision premiums do not significantly change either. That and the fact that insurance companies are greedy SOB's.
While no consolation, your comp & collision premiums are lower than the premiums for each newer model Suburban.
If comp & collision coverage was on a replacement cost basis rather than for ACV (actual cost value) one would expect the premiums to continually increase as the replacement cost increases. With ACV, like we have here, one might expect the premium to decrease as the value of insured property decreases. That would hold true if the insured property was, for example, a collection of glass artwork where repairs are not a factor, but we are dealing with automobiles and most auto physical damage claims are not a total loss.
Think about it this way. If your premium was allocated based upon projected claims, the majority of your of your premium would be allocated towards those potential claims that involve repair rather that a total loss settlement. As mentioned the cost of repairing your vehicle as it ages does not significantly change, and so the comp & collision premiums do not significantly change either. That and the fact that insurance companies are greedy SOB's.
While no consolation, your comp & collision premiums are lower than the premiums for each newer model Suburban.
NickDanger
2,500+ Posts
I had my mind fixed on theft or total loss. I still think though that as a vehicle depreciates, it becomes a more likely candidate to be a total loss (due to a lower ACV) and a less likely candidate for theft. Both of those scenarios ought to mitigate somewhat.
This wasn't one of my typical rants, btw. I was just curious. There's obviously a lot of play in the numbers if a carrier wants there to be. Frequent shopping seems indicated.
This wasn't one of my typical rants, btw. I was just curious. There's obviously a lot of play in the numbers if a carrier wants there to be. Frequent shopping seems indicated.
12thStudStan
250+ Posts
I agree, Nick. Five grand of damage on a $30k vehicle might be a no brainer for adjusters, but that same five grand of damage on a $8k vehicle has them calculating the salvage value to determine what is the best net end result for the company, repair or total loss.
There is certainly a lot of play in the numbers if they want. We are seeing that more now than ever before with influx multi-tiered rates. Most insurance companies used to have a rating system with 2 or 3 levels. Have a clean record and prior insurance and you would get the best rate. Be a step below that and get the middle rate. Those less desirable than that either get the shaft or just flat get turned away.
After credit/consumer scoring entered into the equation we are seeing numerous rating bands, potentially thousands of different rates for insuring the same vehicle in the same state with the same company. The only variable being you. I used to advocate loyalty and relationship building when it comes to insurance and I still believe that was the way to go, however as insurance companies begin to more and more resemble cell phone carriers or cable TV providers in how they operate I find it hard to argue against frequent shopping.
If people think they hate insurance companies now, just wait until they find out that their neighbor that has a worse driving record than they do pays a lot less in insurance premiums with the same company because he/she has a little higher credit score. If that doesn't make them mad, how about that neighbor just signed up with that same company that you have been with for several years and have never filed a claim with. Welcome to the new age of insurance.
There is certainly a lot of play in the numbers if they want. We are seeing that more now than ever before with influx multi-tiered rates. Most insurance companies used to have a rating system with 2 or 3 levels. Have a clean record and prior insurance and you would get the best rate. Be a step below that and get the middle rate. Those less desirable than that either get the shaft or just flat get turned away.
After credit/consumer scoring entered into the equation we are seeing numerous rating bands, potentially thousands of different rates for insuring the same vehicle in the same state with the same company. The only variable being you. I used to advocate loyalty and relationship building when it comes to insurance and I still believe that was the way to go, however as insurance companies begin to more and more resemble cell phone carriers or cable TV providers in how they operate I find it hard to argue against frequent shopping.
If people think they hate insurance companies now, just wait until they find out that their neighbor that has a worse driving record than they do pays a lot less in insurance premiums with the same company because he/she has a little higher credit score. If that doesn't make them mad, how about that neighbor just signed up with that same company that you have been with for several years and have never filed a claim with. Welcome to the new age of insurance.
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