Finance Tips

Whenever you ask a talking head paid by the insurance industry, “How do you calculate the premium rate?” the answer is always the same. There’s a big smile of sincerity and that reassuring voice says, “We look at the driver. It’s all about who you are and what you drive.” And that, of course, is how it should be. Actuaries are paid to estimate the risk of accidents and, as they keep telling us, the statistics never lie. These actuaries are like pack rats. They collect every last detail of every accident that gets reported. It doesn’t matter whether it’s a police report, a claim to the insurers from a hospital for treating accident victims, or reports in local newspapers. They have information about accidents going back to the time we were switching over from real horses to horse-powered engines. So ask how many men aged 33 have had an accident at 2 a.m. while driving a red Ford Contour in the rain with a new moon and, with the click of a mouse, you will have the answer by return. It’s the detail that’s so impressive. More importantly it shows exactly how many claims are made by male as opposed to female drivers, and what the average value of the claims is.

All around the world, the statistical evidence shows women making fewer claims and, when they are involved in accidents, the amount claimed tends to be lower.

The reason for this is that, in general, women drive within the law. They do not try to beat the lights or drive too fast on city streets so, if there is an accident, they are traveling more slowly and the impact is less damaging both to the vehicles and the people inside. Not surprisingly, this excellent safety record has been rewarded by lower premiums. Where the risk is lower, drivers pay less. Except, in Europe, this will change next year.

The European Court for Human Rights has just ruled that men and women must pay the same premiums. At the end of 2012, there must be a new system in place to calculate premiums without relying on gender as a key factor. So what’s going on? Well, ask yourself, is it fair to charge someone more to insure their vehicle just because they are male. No one asks to be born male or female so why penalize all those who have the bad luck to be born male? Keeping this real, men don’t crash because their sexual apparatus gets caught in the steering wheel. People get into accidents because they drive badly. There’s no point in forcing people to pay more because of something they are powerless to control. There’s every reason to base auto insurance quotes on actual driving records because, if the record is bad and the premium rate is high, it gives those drivers an incentive to improve their driving. Calculating premiums should be very personal, looking at how well each individual drives. Grouping everyone together on the basis of their gender for issuing auto insurance quotes is arbitrary and unfair (at least, in Europe).

Insurance is all about the numbers. If the evidence proves there’s a higher risk, you pay a higher premium rate. This can be a judgement about the quality of your driving. Perhaps your eyesight is poor or you are epileptic. Whatever the reason, you are potentially dangerous on the road and, if the insurance company discovers this fact, it will either cancel your policy or demand you pay an extravagant premium. More often, the problem is with the vehicle itself. It may be a target for every car thief in your neighborhood, or it may roll over if you corner too fast. The actuaries collect details of every recorded accident and can tell you which makes and models are most likely to be totaled and why.

Every year, groups publish lists of unsafe vehicles. The government runs crash tests and liaises with manufacturers to decide when unsafe vehicles must be recalled.

As will be obvious from the problems with Toyota, this process does not always work as well as it should. There are also independent groups that analyze the data and tell you which vehicles to avoid. In the most recent surveys, it seems the quality of the vehicles manufactured by US companies has been improving. If you go back twenty years, US quality fell off a cliff, allowing both European and Asian companies to get an ever stronger foothold in our markets. Now Consumer Reports confirms a significant improvement. In performance and reliability studies, Ford has emerged with vehicles to match those designed and manufactured by foreign companies. Sadly, General Motors and Chrysler continue to make the worst. In making this judgement, the Consumer Reports assessed both physical safety and value for money. If a vehicle is expensive to buy, maintain and fuel, it will be rated badly. So many trucks and SUVs are very poor value but equally, very safe because there’s a lot of metal between you and all the other vehicles on the road. Unfortunately, even though something like a Jeep looks cool, it’s unreliable and costs a small fortune to run. It’s the same when it comes to the Cadillac Escalade and many of the Chevrolet brands. They have been rated as the worst cars on the road for some years.

So, before you think seriously about buying something like the Cadillac Escalade, whether new or secondhand, remember it’s had the worst safety performance for some years. If you want independent confirmation of the problems, get some car insurance quotes and discover how much more it costs to insure this make and model than many other brands on the market. Getting the more affordable premium rates starts with your choice of make and model. Pick something that’s safe in most road conditions, handles well and absorbs impact to protect the driver and passengers. If the same vehicle is also difficult to steal, this completes the picture of the perfect car to own. All companies will reward your choice with car insurance rates at the bottom end of the scale. So, unless money is no object, never buy a vehicle because of its ability to out-accelerate a low-flying fighter plane. Buy something safe, that’s cheap to repair and doesn’t cost you a fortune when you go to put gas into the tank.