There's an interesting podcast episode here[0] (transcript at [1]) arguing that car insurance in the US is actually too cheap because it doesn't cover the costs of car crashes, particularly the ever increasing healthcare costs. It also really gets into how insurance works in the case of an accident and covers some things I hadn't known about such as how subrogation works.
Be warned it does start with a very sad story of a toddler who was killed by a driver.
> Using figures from 2019, the study looked at the direct cost of car crashes—everything from the price of emergency response, medical expenses, court fees, congestion, the cost of property damage, you name it. NHTSA found that the total hit to the economy in just that one year was $340 billion.
> The NHTSA study also looked at broader quality of life costs—things like what happens when a family’s primary breadwinner is killed, or when someone has to adjust to a life-altering injury. Adding those impacts brought the total cost of societal harm from motor vehicle crashes to $1.4 trillion.
There are 228 million drivers in the US. Assuming no cost to administer the insurance, just the first figure is:
340 billion / 228.2 million = $1,490/year/driver
and the 2nd figure is 1.4 trillion / 228.2 million = $6,135/year/driver
Essentially, drivers would need to, on average, pay $511/month to completely cover the damages caused in auto crashes. And that's per driver, so a household with 2 drivers would chip in $1022/mo.
Those other services are paid for by taxes. The tempting response to this will be thT those taxes could be lower, saving non-drivers money. However, the taxes may not be paid by drivers but all people benefit from drivers existing such that the economic impact of forcing only drivers to pay for these things will end up being priced into all goods and services.
Essentially, government services paid for by taxes function very similarly to an insurance pool.
The situation it lays out, where the $100k of other driver's liability coverage isn't enough to cover their damages (including what health "insurance" paid out) - isn't that exactly what the "underinsured driver" line item is for?
Also isn't the main reason you never cash such a check from an insurance company is that it's an offer for a final settlement, or at least could be construed as such, even though you might be owed much more?
I do agree that it's a problem for insurance companies to be able to set upper limits on coverage, after which they walk away. The whole point of insurance is to cover long tail risk. If the area under the chopped off long tail is really that large, then that means a lot of damages are just currently being dropped on the floor.
This is not an actual problem. If an insurance company offers a settlement then you can always attempt to negotiate for more. Auto insurers offer a range of liability coverage limits; if a customer selects minimum coverage then that's hardly an insurance issue.
Rising cost of repairs are causing this as new car are becoming so complex and are so difficult to repair they are causing catastrophic loss to insurance companies.
Electric cars lead this change with eye watering repair costs, but just look at the cost of replacing the headlight on a 2024 f-150 — it is almost 1400 bucks, plus labor. Each. So a minor fender bender is thousands and for insurance you have to use approved parts, which are most always OEM and painfully expensive.
Cars are complicated and expensive to repair and getting more complicated. And manufacturers are doing strange things. Like the 2024 Lexus GX has a hutch included in every model (yay, finally), but then it sticks out several inches and is welded to the frame so even a minor fender bender can total the car — it’s the first thing that gets nailed when someone read ends it and it goes straight to the frame. That’s not a good plan, and could (in my opinion definitely will) lead to totaling the car from minor fender benders.
And electric cars in general are even more expensive to repair.
I think there should be changes in laws that limit someone else's liability based on what you are driving.
For example, look at the viral report of a minor fender bender of a Rivian that was quoted for 40k in repairs. While going in-depth this particular instance looked more like border-line insurance fraud, I think it's ridiculous that if you decide to drive an exceedingly fragile (at least when it comes to repair costs) vehicle that other people on the road should be responsible for that. Like if I use a faberge egg as a hood ornament and someone dings it, do I get to sue them for a couple million?
It feels like limits on vehicle liability will at the very least force car makers to take repairability into consideration when designing their cars.
That’s such the point. You’ve got one of the core issues about what is going articulated perfectly.
The problem is that the manufacturers are incentivized to build them with high repair costs based on how they make money… they make a ton from parts. And there are massive changes forecast for the parts market.
If you really want to dig in, and you may know all of this already, this is a great article outlining the transition currently happening for tier1 parts suppliers:
All of these changes are coming out in the insurance industry, but the insurance industry is constrained by what insurance commissioners will allow, and of course there’s the point you are making at core — they’re not making parts affordable because it’s become a profit center for them. A lot of money is now being made in the backend as companies optimize their supply chains for BEVs.
Take a look at the New Strategies section of that article.
> And electric cars in general are even more expensive to repair.
Something has gone crazy over the past ten years: my 2014 BMW i3 over 79,900+ miles cost all of about $200 in maintenance, not including occasional new tires. EVs can be very frugal.
Probably, Elon has some quote about how creating a successful new car company isn't hard because cars are hard to design.
It's hard because cars are generally sold with razor thin margins and all the money is made selling parts and service. Seems crazy but perhaps this is actually true.
But when the battery finally has a terminal issue, you're looking at a $30k quote to replace it. Or scrap the car. That's a real figure from this year for US i3 owners. But other cars are $20k+ too.
It's hard to offset long term expenses against car values, but it's certainly something am insurer needs to consider for liabilities.
Your EV can probably last forever as long as you don't hit anything with it, or get hit by anything else. You'll need to get a new battery someday, but those might fall in price rather than become more expensive (assuming someone other than BMW can make them, which is a big open question).
> Like the 2024 Lexus GX has a hitch included in every model (yay, finally), but then it sticks out several inches and is welded to the frame so even a minor fender bender can total the car — it’s the first thing that gets nailed when someone rear ends it and it goes straight to the frame. [typos fixed]
A hitch needs to be strongly connected to the frame or it's not very useful for towing. Welded or bolted. Most factory hitches are just a bit inside the bumper though, not sticking out?
You could use a shear bolt or similar to fail without hurting the frame, or at least the frame tanking a decent number of those events (where the shear bolt fails each time) before fatigue limits make it unsafe to use afterwards.
>so complex and are so difficult to repair they are causing catastrophic loss to insurance companies.
in US maybe. Tons of companies in EU specializing in imports of "totaled" US cars. Totaled by cost calculated with magic insurance algorithms, but in real life easily fixable cosmetic/suspension/mechanical damage. Repairs are in $5-10K range for a $20K "totaled" car worth $50K when fixed. Money laying on the street waiting to be picked up.
Are US car insurance companies similarly limited by law to a certain percentage of profit like Healthcare? Because this does feel like car insurance companies are artificially inflating costs to bump premiums.
They are limited by insurance rules in each state and federal. The patchwork of consumer protection regulation makes for a lot of weird effects, like the one you are discussing.
They are not limited in profit, but they are limited in what they can do, when they are required to total a car, etc.
Auto insurance feels like one of the products inflated slower than it should have; mostly that so may drivers were under insured despite laws requiring insurance, that uninsured motorist insurance became a large part of policies.
Add in cash for clunkers, then pandemic spending on autos. And moving from 4 year to 6 year loans.
Most states don't have road inspections either, so a dangerous tint, bald tires, non existent brakes, broken suspension, and a check engine light likely accompany the underinsured motorist.
Huh? Cash For Clunkers ENDED nearly sixteen years ago. Trying to paint that as a reason why auto insurance is higher now is a poor justification. Cash for Clunkers resulted in not just removing fuel inefficient cars from the road, but they ended being replaced with newer, generally safer vehicles.
no - here in California there was an unsolicited notice sent out last week for a 1991 Toyota IIR .. they offer some hundreds of dollars in print, from some agency of the State of California
secondly the auto in question is a simple 4-cylinder design, manual shift and no electronics in the two doors. A definition of safety that includes feedback msgs while driving, or constant location tracking.. is something about which reasonable people may disagree.
The 10-15 year range (a large group getting new vehicle credits) is likely relevant in second hand ownership and used car markets, so it is likely highly relevant.
"Generally safer" is a detail to dig deeper into, do the cars have more safety features and are they better performing, no doubt. Has the US seen fewer pedestrian deaths, fewer collisions, no. Cost to repair also went up significantly.
Possibly worth mentioning is the financing model changes of car manufacturers over the last 3 decades.
I always thought fender-benders were a rounding error, especially for large insurance companies. It's the catastrophic accidents, involving deaths that cost a lot of money.
As a Californian, I experienced a lot of trouble getting quotes for collision and comprehensive in the past year for reasonable prices, if at all - everyone was happy with liability, but it sounded like general property damage (fires, floods, landslides, etc.) for autos led a lot of companies to exit the California market or be very selective.
Of course higher repair costs due to general inflation, newer cars having lots of sensors etc. add to it as well, but the agents I talked to specifically cited general comprehensive (not collision or liability) claim concerns as one of the main reasons.
An increasing number of thefts is the premium cost driver right now, though. In this little part of the world, the number of theft claims have increased by more than 300% within the span of just a few years.
It is also a volume game. If there is many times more fender-benders those add up. And actually deaths can be pretty cheap. Compared to life long injuries or need for lot of medical care.
> Then there’s also the the objectively atrocious driving record of Americans.
I think as in most things, the higher the penetration, the worse the average will be. If you give every moron in the country a car, the average will be pretty awful, the us just has high penetration. As a European it's always shocked me that in the us even borderline retarded people have cars. In Europe that's less so the case because those people usually can't afford to buy a car.
Also the penalties are much more severe in Europe. In Europe you can get thousands in fines automatically if you’re speeding, meanwhile that’s basically a standard DUI plea deal in the Midwest.
People just don’t give a duck about following the rules when driving in the US unless police are around, even then in some places there are rules where police can’t even stop you for minor infractions so it’s chaos in some areas.
It’s Mad Max out there right now. I don’t think I’ve seen a car driven more than a couple blocks without breaking at least one law since the pandemic. Constant 20 mph over the speed limit, even when the limit is 20. Barely slowing down for stop signs. Ignoring crosswalks unless doing so would kill someone, and in that case, don’t stop, just slow down a bit until the person dives out of the way. Tailgate anyone only driving 15 over. Dive from lane to lane, or even use medians, shoulders and bike lanes to pass. I’m so stressed out any time I’m not in my house. I hate it.
I think this plays a huge part as well. My wife and I were watching an episode of the US cop show “The Rookie” and they casually discussed paying a ticket for driving SEVENTY MILES OVER THE SPEED LIMIT. I went and checked and in LA the cost is about $500. This blew my mind.
In Australia, you are very at risk for jail for going over anything above 40km/h which is about 25mph. It’s considered reckless/dangerous driving. Your license would also be suspended for six months. I think we have excessive fines but the US seems to go in the opposite direction.
Four times worse per capita than the United Kingdom, three times worse than Australia, more than twice as bad as Canada .. but hey, at least the US has fewer road fatalities than El Salvador.
Ackshually go back to your list and tell me which high income countries do worse than the USA. Do you struggle with reading comprehension or something?
Maybe auto insurers have realized that as EV's take over and batteries improve the costs will come down and the efficiencies of EV's will reduce both the cost of cars and the cost of repairs, hence the insurers will have a smaller slice of a smaller pie and thus are raising prices now to get some profit before the entire business downsizes.
The kinds of EV repairs insurance companies are concerned with are likely not cheaper. Less third-party parts, fewer technicians with expertise, and some models like Rivians are ridiculously expensive for even basic body work. I assume they have a higher risk of being a total loss (especially if the main battery is damaged)
Readit News
Be warned it does start with a very sad story of a toddler who was killed by a driver.
0: https://thewaroncars.org/2024/03/19/122-car-insurance-is-too... 1: https://thewaroncars.org/episode-122-car-insurance-is-too-ch...
> The NHTSA study also looked at broader quality of life costs—things like what happens when a family’s primary breadwinner is killed, or when someone has to adjust to a life-altering injury. Adding those impacts brought the total cost of societal harm from motor vehicle crashes to $1.4 trillion.
There are 228 million drivers in the US. Assuming no cost to administer the insurance, just the first figure is:
340 billion / 228.2 million = $1,490/year/driver
and the 2nd figure is 1.4 trillion / 228.2 million = $6,135/year/driver
Essentially, drivers would need to, on average, pay $511/month to completely cover the damages caused in auto crashes. And that's per driver, so a household with 2 drivers would chip in $1022/mo.
Essentially, government services paid for by taxes function very similarly to an insurance pool.
Also isn't the main reason you never cash such a check from an insurance company is that it's an offer for a final settlement, or at least could be construed as such, even though you might be owed much more?
I do agree that it's a problem for insurance companies to be able to set upper limits on coverage, after which they walk away. The whole point of insurance is to cover long tail risk. If the area under the chopped off long tail is really that large, then that means a lot of damages are just currently being dropped on the floor.
Electric cars lead this change with eye watering repair costs, but just look at the cost of replacing the headlight on a 2024 f-150 — it is almost 1400 bucks, plus labor. Each. So a minor fender bender is thousands and for insurance you have to use approved parts, which are most always OEM and painfully expensive.
Cars are complicated and expensive to repair and getting more complicated. And manufacturers are doing strange things. Like the 2024 Lexus GX has a hutch included in every model (yay, finally), but then it sticks out several inches and is welded to the frame so even a minor fender bender can total the car — it’s the first thing that gets nailed when someone read ends it and it goes straight to the frame. That’s not a good plan, and could (in my opinion definitely will) lead to totaling the car from minor fender benders.
And electric cars in general are even more expensive to repair.
https://www.repairerdrivennews.com/2022/07/12/ccc-report-rep...
It all comes out in higher insurance costs.
For example, look at the viral report of a minor fender bender of a Rivian that was quoted for 40k in repairs. While going in-depth this particular instance looked more like border-line insurance fraud, I think it's ridiculous that if you decide to drive an exceedingly fragile (at least when it comes to repair costs) vehicle that other people on the road should be responsible for that. Like if I use a faberge egg as a hood ornament and someone dings it, do I get to sue them for a couple million?
It feels like limits on vehicle liability will at the very least force car makers to take repairability into consideration when designing their cars.
The problem is that the manufacturers are incentivized to build them with high repair costs based on how they make money… they make a ton from parts. And there are massive changes forecast for the parts market.
If you really want to dig in, and you may know all of this already, this is a great article outlining the transition currently happening for tier1 parts suppliers:
https://www.bcg.com/publications/2023/growth-strategy-tier-o...
All of these changes are coming out in the insurance industry, but the insurance industry is constrained by what insurance commissioners will allow, and of course there’s the point you are making at core — they’re not making parts affordable because it’s become a profit center for them. A lot of money is now being made in the backend as companies optimize their supply chains for BEVs.
Take a look at the New Strategies section of that article.
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Something has gone crazy over the past ten years: my 2014 BMW i3 over 79,900+ miles cost all of about $200 in maintenance, not including occasional new tires. EVs can be very frugal.
Is it profiteering and collusion now?
It's hard because cars are generally sold with razor thin margins and all the money is made selling parts and service. Seems crazy but perhaps this is actually true.
It's hard to offset long term expenses against car values, but it's certainly something am insurer needs to consider for liabilities.
A hitch needs to be strongly connected to the frame or it's not very useful for towing. Welded or bolted. Most factory hitches are just a bit inside the bumper though, not sticking out?
Why would you want one of these on your car? https://en.wikipedia.org/wiki/Hutch_(furniture)
in US maybe. Tons of companies in EU specializing in imports of "totaled" US cars. Totaled by cost calculated with magic insurance algorithms, but in real life easily fixable cosmetic/suspension/mechanical damage. Repairs are in $5-10K range for a $20K "totaled" car worth $50K when fixed. Money laying on the street waiting to be picked up.
Are US car insurance companies similarly limited by law to a certain percentage of profit like Healthcare? Because this does feel like car insurance companies are artificially inflating costs to bump premiums.
They are not limited in profit, but they are limited in what they can do, when they are required to total a car, etc.
This is how auto body collision costs use to be, before the feds stepped in. Remember those crazy huge old ornamental bumpers ? They drove the reform.
So... extend this regulation model.
Add in cash for clunkers, then pandemic spending on autos. And moving from 4 year to 6 year loans.
Most states don't have road inspections either, so a dangerous tint, bald tires, non existent brakes, broken suspension, and a check engine light likely accompany the underinsured motorist.
Huh? Cash For Clunkers ENDED nearly sixteen years ago. Trying to paint that as a reason why auto insurance is higher now is a poor justification. Cash for Clunkers resulted in not just removing fuel inefficient cars from the road, but they ended being replaced with newer, generally safer vehicles.
secondly the auto in question is a simple 4-cylinder design, manual shift and no electronics in the two doors. A definition of safety that includes feedback msgs while driving, or constant location tracking.. is something about which reasonable people may disagree.
The 10-15 year range (a large group getting new vehicle credits) is likely relevant in second hand ownership and used car markets, so it is likely highly relevant.
"Generally safer" is a detail to dig deeper into, do the cars have more safety features and are they better performing, no doubt. Has the US seen fewer pedestrian deaths, fewer collisions, no. Cost to repair also went up significantly.
Possibly worth mentioning is the financing model changes of car manufacturers over the last 3 decades.
Of course higher repair costs due to general inflation, newer cars having lots of sensors etc. add to it as well, but the agents I talked to specifically cited general comprehensive (not collision or liability) claim concerns as one of the main reasons.
> Then there’s also the the objectively atrocious driving record of Americans.
I think as in most things, the higher the penetration, the worse the average will be. If you give every moron in the country a car, the average will be pretty awful, the us just has high penetration. As a European it's always shocked me that in the us even borderline retarded people have cars. In Europe that's less so the case because those people usually can't afford to buy a car.
People just don’t give a duck about following the rules when driving in the US unless police are around, even then in some places there are rules where police can’t even stop you for minor infractions so it’s chaos in some areas.
In Australia, you are very at risk for jail for going over anything above 40km/h which is about 25mph. It’s considered reckless/dangerous driving. Your license would also be suspended for six months. I think we have excessive fines but the US seems to go in the opposite direction.
Well, ackshually, the US doesn't look that bad, according to this chart [0].
The US is #107 of 191 for deaths per capita and #5 of 25 for deaths per mile driven.
However, there are only 25 countries on that chart with data for deaths per mile driven.
[0]: https://en.wikipedia.org/wiki/List_of_countries_by_traffic-r...
Ackshually go back to your list and tell me which high income countries do worse than the USA. Do you struggle with reading comprehension or something?
Deleted Comment