Hey there. Did you know that it’s Car Care Month?
Cars cost a lot of money, and the personal finance blogosphere has a whole lot to say on the subject of cars, that’s for sure. Let’s ignore the cost of cars, themselves, okay?
Do you know anyone that makes you pause, just for a moment, and question whether you should be a passenger in their car? The kind of person who seems to have lucky horseshoes, but their driving habits really don’t warrant a mostly-blemish-free record?
You probably do.
This person is literally an accident waiting to happen.
Unfortunately for you, that friend is the reason your car insurance costs so much.
Insurance companies face a problem called unobservability. They have to figure out how much to charge you for insurance, but they can’t see how you drive. They don’t know if you’re an accident waiting to happen, or have the smush-dodging reflexes of a house fly.
Traditionally, the way car insurance companies figure out how much to charge you is to group you together with other people with similar characteristics, using actuarial science. That’s why you see young men’s insurance rates topping the charts, they’re grouped by risk based on observable characteristics.
The same goes for speeding tickets, years driving, type of vehicle (people with sports cars tend to drive them like sports cars, and some cars are stolen all the time), and even school grades. I had some friends in Ontario who had to take their high school grades in to their insurance company in order to get a discount for A’s!
When you get older, you can’t exactly hand in your high school grades. You probably get all sorts of insurance offers from your post-secondary institution, or other groups to which you belong. That’s because it’s another way for insurance companies to group people by risk. Insurance companies want as many low-risk customers as possible, and fewer high-risk customers.
Giving you a discount for being in a lower-risk group is way for them to attract you.
Unfortunately most observable characteristics are lagging indicators, aka they only say what’s happened, not what could happen. Like your friend that is an accident waiting to happen, until that accident happens, they might look just fine on paper. Plus, most observable things are well removed from the day to day.
So what is an insurance company to do?
The latest trend is to observe people’s driving habits directly, and refund people with good habits, and those who do not drive as often or as far as others. This Atlantic article talks about the benefits of letting Big Brother into your car with a recording device.
Creepy? Maybe. But it has financial implications that could be good (or bad!) for you.
I haven’t heard of any big-brother attachments in the Canadian car insurance industry yet, so we are left with doing our best to signal to insurance companies that we are low risk. Not many of us are up for changing our sex marker, and definitely no one’s going to do that for a car insurance rate change, so focus on higher education, no speeding tickets and no accidents!
Oh, and of course, make sure you shop around for your car insurance. If you save $50 and it takes you an hour, that’s an hour well spent for most folks. If you are in Australia, take a look at Youi Insurance to see if they have what you need.
And please, keep your accident-waiting-to-happen friends safe. After all, that friend is why your car insurance costs so much (and mine too!).
Unrelated Pro Tip #1: The car insurance stickers in BC are really sticky. They are also designed so that they can’t be peeled off in one piece, so that no one can simply steal a sticker from someone else. Do not put them on in the wrong spot, or you will have a drunk-looking sticker for an entire year. Ask me how I know this.
Do you have any crazy stories about your friend?
This is the reason the insurance companies charge more to new drivers as they are on high risk. I think your advice is really helpful for people who are looking for car insurance.
over in the UK they are offering lower car insurance premiums to drivers with a kind of “black box” installed in their cars, which tracks things like how many times the brakes are rapidly applied (hence indicating nearly hitting something). I think it is a good direction for the industry to move in. It is one way technology can really help drivers, especially the safer ones that deserve better premiums!
I guess I never really thought about staying updated with state and federal regulations, I wonder if my husband has though. My husband and I have been talking about buying new car insurance, we just haven’t found the right company. I’ll have to see if he’s found any new auto insurance companies too.
The information you have provided is valuable and I want to give you a huge thumbs up for it.
I think while shopping around for your new car on the internet or demanding for recommendations from your friends or looking for at least 3 quotes is a great idea for getting cheaper insurance coverages. And getting cheap car insurance quotes on the net is the quickest one.
Thanks for sharing.
Great factor you mention here. and also Age, in an insurer’s eyes, is directly related to experience. The more experience you have behind the wheel, the less likely you are to cause an accident.
I definitely have that friend I hate to drive with, and I let him know. Some people are just inherently bad drivers. It’s unfortunate, but its definitely something insurance companies look at. Great post.
I didn’t know high school grades could improve car insurance rates. I suppose it’s because good grades reflect on your ability to be responsible at school. And if you’re responsible at school, there’s a good chance you’ll be responsible on the road, as well.
Must say..owning and maintaining a vehicle costs a lot of money. With the number of lawsuits arising from car accidents and the rising cost of vehicles, car insurance rates have become hefty across the country. Unfortunately, these insurance costs are not likely to go down any time soon.
Btw Nice post..i have enjoyed reading all of it..@Anne!! Thanks for sharing this…:)
That’s an interesting matter that you brought in our attention, Anne. It looks like I have to be a bit careful next time around. Nice sharing.
I agree that it’s worth shopping around to find the right car insurance. I also have found that just as important as finding a good policy is the need for a company to offer quality customer service. As long as you have these two things, you can’t go too wrong in selecting a policy and company, but this can be harder than it sounds.
I had no idea that your friends could cost you so much money with your insurance rates. This is really good information to have! Thanks so much for sharing!
Unfortunately, I think I’m that friend who drives people’s rates up! I have heard of the idea of putting driving recording devices in the car. I definitely don’t think that would be a good option for me. However, I can definitely see that working well for my sister! I’ll have to mention it to her!
It’s interesting that car insurance companies use groups to determine quotes. The quote that I have right now isn’t too expensive, I just wanted to see if I could get some better deals. So, what you’re saying is that I should join safe-driving groups?
Not quite… but speak up if your friends are driving badly!
I drive a turbo sports car, and I’m totally guilty of driving it like a sports car. And for a minute, I was really nervous about how my friends might be ratting me out for speeding to my insurance company. You really got me with your title!
Now I understand why you say that your friend is why your car insurance rate is high. A lot of the time the other people in the car are a distraction to the driver. No matter how skilled a driver is, they cannot afford to be distracted. If you commonly ride with others, it might be a good idea to get more auto insurance.
It’s true, insurance companies want as many low-risk people as possible. I try and drive as safe as possible every single day. It helps me save money on repairs and healthcare. My wife and I take defensive driving courses monthly. Do you think I should get full coverage insurance?
There are a lot of factors that go into deciding what the right level of insurance is for your own situation. Sorry, I don’t know enough to answer off of this comment!
I don’t drive, so I might be biased, but it seems to me everyone I know asserts they’re a “good driver” and, honestly, they all seem harrowingly awful. Like, they’re all confident and capable at driving, but almost anyone who drives enough won’t follow *all* the rules / get a little sloppy. So obviously as an insurance company exec, I’d counterintuitively make your rate inversely proportional to your confidence in your own driving.
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Some rules are for breaking 😉 That’s a fun pricing rule, though.
If it’s an option, I highly recommend getting a driver’s licence, you never know when one will come in handy.
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I have this friend whenever I am in her car, we always get in an accident. I really don’t know why. Just lately, she invited me again, but I replied with a condition that this time I have to do the driving. I don’t want to be in that situation again and I get nervous whenever she drives. Can’t take it anymore.
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Multiple accidents? YIKES
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I remember a road-trip with friends a few years back, where I was the passenger sitting behind the driver. We were on a multi-lane highway, doing 120km/hr, and everytime my friend would need to change lanes, she would jerk the whole car in the same direction she was turning her head (to check if the lane was clear). It was TERRIFYING. She crossed the white-lines into the other lane every single time! Thankfully the roads weren’t too busy, and we made it out safe, but there were a few too many close-calls for me!
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Eeeeeeeek!!
I definitely have a friend I refuse to get in a car with! Even if it´s totally inconvenient for our plans, I say “I´ll drive.” Haha! I haven´t been in a car wreck since I was a little kid, and well, now I drive super carefully not only for the safety, but for the financial aspect of it. Having to get a car repaired/replaced would be super expensive!
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Yikes! That’s great that you haven’t been in an accident.
One of our vehicles has some damage from being the woods and good golly you are right, the quotes to fix it are insane!
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