Why Markets Will Lead To Lower Insurance Premiums


Many people believe auto insurance would be cheaper because it doesn't have to make a profit. A new study from the United States by Conning Research & Consulting notes that while U.S. drivers may be overpaying for insurance by ten to fifteen per cent, the situation cannot and will not continue due to the need to make a profit. Many insurance companies have naively assumed that, when two vehicles collide, the same amount of damage will be done to one another. Overall, they wanted to avoid the higher administrative costs of creating a new pool of insured drivers and they didn't want to annoy their more affluent customers. The equal damage theory is hardly true. However, as more drivers choose significantly larger passenger vehicles, such as light trucks and SUVs, insurance companies have been forced to adjust to this new reality. Studies note that companies covering about thirty per cent of the personal car insurance market do now make a distinction between smaller and bigger vehicles. Other companies are considering it, though they feel that certain car makes less likely to be in accidents. Still, the math will be decisive.

United State premiums average between eight hundred and nine hundred dollars. Half of that amount for liability insurance. If companies believe that cars, such as SUV’s carry more risk, car drivers could save up to one hundred dollars by switching to a firm which differentiates between bigger and smaller cars. If a company fails to do so, it will lose customers and suffer lower profits. Shareholders may promptly file suit in order to win back customers. Governments can attempt to legislate to lower premiums without doing anything about the payments, but this could drive private companies away, leaving the public sector to take over. Governments would be forced to hide the real, (high) cost of premiums by subsidizing the state insurer from tax dollars, (including those from non-drivers) or let the state insurer do a cheaper, careless repair job which would drive away consumers with other choices. Ultimately, it is the market, not government, which will find an efficient solution that is most reasonable to consumers

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