If your theory is that they can raise prices arbitrarily for profit, then you have to explain why they have not already done so.
Insurance companies complete on actuarial accuracy. I'd rather bad drivers pay more, and be in incentivized to drive better, than young drivers and all drivers pay more.
Why don't insurers just raise all rates 50% right now?
My guess is it's because there's a competitive market.
This doesn't change this. This allows for better price discrimination than our current tables based just on age, car, neighborhood, gender, etc. This will raise rates for high-risk drivers and lower them for low-risk drivers. If the insurer does the first and not the latter, the latter will go to an insurer who does.
It seems like the view here is that everyone will only do the former, but again: why don't they do that right now? Why does the effect of competition vanish in this case?
"Every insurer will use this technology eventually" isn't an answer. Every insurer has accident data by age. As a result, they offer lower rates to lower-risk age groups.
The insurance industry is fairly heavily regulated (in the US). They can only charge different rates based on specific factors. This means that your entirely imaginary (and therefore entirely unconvincing) scenario will remain entirely imaginary (and unconvincing).
Personally, I would prefer if car insurers could price discriminate more based on data. I think this would lower rates for me personally, both in the short term because I try to cultivate safe driving habits, and in the long term because it would create an incentive for everybody to try to drive more safely.
I would favour indiviualised pricing and I don't think it would be too hard to achieve without getting too invasive. Basically, your driving record should speak for itself over time.
The problem would be that approach is that insurance companies want to be able to keep an element of fuzziness in their pricing. Predictable pricing is the last thing they want. Why do they only care about beating your current quote, but have no interest in what you were paying for insurance in years gone by? If you have a 10+ year history of perfect driving in dull boring cars, how can insurance companies significantly increase your premium without being able to justify why they suddenly think you are now riskier?
By putting people in buckets they can adjust prices without singling anyone out, and as a by product keep the consume a bit confused abut what is going on.
I see it happening all the time. Drivers with no claims, no points, no convictions and who drive safe, dull dull cars suddenly having the premiums increased. Its not because of them or what they did, its because the insurance company decided to put them in a bucket that justified a price hike.
> Once automated cars are a realistic option, insurance companies can properly price insurance for human drivers much higher (comparatively speaking).
What's "proper" about raising the prices for no reason? If they start pricing human drivers higher than they currently do, some other insurer will just undercut them.
The same incentive they have today: profit based on taking in more in then they have to pay out based on risk. If insurance companies arbitrarily bump up insurance for manually driven cars, then that opens up a market for someone to jump in and accurately charge based on risk.
I think insurance companies are also salivating at having access to detailed driving data so they have more reasons to deny claims and raise rates. I'm not sure they want to jeopardize that by getting on automakers' bad side.
Insurance companies already stratify premiums. You can be a perfect driver and pay extreme premiums because you happen to be young and live in a certain neighborhood rather than another, since actuaries are forced to rely on correlations rather than causation since they lack this data.
As someone who has never gotten into a wreck nor even gotten a speeding ticket, I for one would welcome a data driven approach to pricing premiums rather than having me binned with my peer group who has no qualms texting and driving drunk over the speed limit, on average.
This is assuming that auto insurance isn't a competiitve industry. If a company attempts to raise rates because of a trend that doesn't actually exist, they will inevitably not be competitive with companies that recognize that the trend doesn't exist, and thus it won't change prices for the consumer.
If the insurance companies could arbitrarily raise rates due to a trend that doesn't exist, than they would have already done so. These companies know their margin and they don't bid above that if they want to be competitive.
Why does it go up? The price isn't as high as it is because there's nothing better. It's based on the expected cost to the insurer, and that should drop when the predictability of the other vehicles on the road increases.
Yes, this is my point: rate increases after accidents are done by choice of the insurance company, not because their risk management requires them to do so, as the grandparent post implied:
> Premiums go up after an accident because it is more likely that you are a poor driver and likely to have another accident.
No, premiums go up in that situation when the insurance company thinks they can do so and not lose too many customers. As you point out, not every insurance company operates this way.
An insurance company only cares about managing risk and revenue across the entire pool. They plan to pay out a certain number of claims, so any given accident might simply be fulfilling the actuarial expectations and not altering their risk calculations at all.
This isn't the only thing driving that effect. In any situation, a price tag can be higher when those receiving the service don't feel it in the wallet immediately, whether for reasons of insurance or even loans (homes, tuition, etc.) and those facilitating (insurers, lenders) would surely be incentivised to do whatever they can to make using their services the best way to get a fair price. Look at rental car rates where a retail walk-up customer pays double or triple what insurance pays -- for the same exact car.
True, I already pay a higher premium due to living in a large city. However, my point is I believe insurance companies will intentional use the data they gather about one's moment to moment driving habits in order to justify premium increases they otherwise couldn't - even for safe drivers.
There's a reason insurance companies charge substantially higher rates for coverage of drivers under 25, and it's not that they believed the first pop-science article they read.
It's a spectrum, not a boolean value. Insurance companies will never get to 100% omniscience, that's silly. Nor will lower-risk people pay so little as to not offer an incentive for insurance to exist. Lower risk is not no risk.
Today the concept I'm talking about already exists in the form of good driver incentives, so the outcome you're predicting is already not how this plays out.
I don't think that is necessarily true.. The cost of insurance is based on the average expected payout per customer... I don't think the average payout will increase, as being a human driver won't suddenly become MORE dangerous, at worst it will stay the same.
It does work like this in some places, and younger drivers aren't any better off in terms of pricing, speaking from personal experience. So this is 95% just pricing by age "with extra steps" as they say.
Consider this: if the first accident happens to an average person after 10 years of driving, young people will take a loooong time to build a driving record that can even be considered average let alone good. And you can't start charging higher rates only after the crash, such rates would need to be so high as to be ompletely prohibitive. Bottom line, young people will never be paying as good a price as older people under any system that has a semblance of fairness to it. Sadly.
I'm not sure what that question gets you, because this won't be the case.
But where is their price floor right now compared to their operating margins?
If the business is mostly actuarial risk, then dramatically lowering that risk by more accurately characterizing good and bad drivers would see premiums plummet.
If the business is mostly SG&A, then better assessing individual risk would be misapplied optimization and wouldn't affect premiums much at all.
(I do look forward to the next permutation, "well what if somebody lowers prices," so we can have a good round of explaining what a cartel is.)
Do you have good reason to think that car insurers have formed a cartel?
If I’m a safe driver, I don’t want to pay more for poor drivers. If this helps insurers more accurately price auto insurance while providing direct financial incentives to poor drivers to improve, I fully support it. This is Econ 101.
Insurance companies complete on actuarial accuracy. I'd rather bad drivers pay more, and be in incentivized to drive better, than young drivers and all drivers pay more.
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