Auto insurance prices have gone nuts | Hacker News Reader

Auto insurance prices have gone nuts

sherwood.news

25 pointsjmsflknr80 comments

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.

0: https://thewaroncars.org/2024/03/19/122-car-insurance-is-too... 1: https://thewaroncars.org/episode-122-car-insurance-is-too-ch...

> 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.

Accounting for negative externalities but not positive externalities...

Accounting for one kind of externality, but this is missing the climate catastrophe, and other costs of car culture.

What are the major positive externalities? (Value enjoyed by the car user isn't an externality)

I suppose that without cars, there would be less economic productivity outside cities. You would not have mass transit in the countryside, so you'd be limited to horse and carriage, rickshaws, etc.

And since cars increase economic productivity, car insurance should be subsidized.

The status quo is not that the insurance is subsidized, however. The negative externalities are being born by individual victims.

A subsidy would be that the government pays for all those unfunded individual externalities out of taxpayer money, which means that every driver has effectively infinite coverage but pays only the state minimums.

State insurance tax would be nice, but only cover to median car amount. Everything over it - insure yourself if you wish to.

Is this an externality? It benefits people who own cars.

(It's far from clear of course that public transit would be missing, there used to be public transit in small towns before everybody got cars in many places. Horses are also unlikely to replace bikes.)

Car ownership for productive economic activity is not an externality, because it is direct, expected, and is captured in GDP and household income figures.

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.

https://www.repairerdrivennews.com/2022/07/12/ccc-report-rep...

It all comes out in higher insurance costs.

> 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.

Is it profiteering and collusion now?

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.

(Upvoted) i think about exactly what you wrote, now with a 2024 electric BMW, in that clearly there is an initial excess cost (not because of being BMW) over similar ICE models (like i7 vs 7 series, m440 vs i4, etc.). And i think that excess cost passed to the buyer for electric over ICE effects includes the profit an ICE would have "earned" over time, because ev models have significantly simpler and less costly powertrains to build, and service. But, i can’t back up that guess with data.

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).

I am not debating potential or technology, but the higher industry repair costs.

Theory meets the road so to speak. I think it’s likely an artificially created profit center to keep the upfront cost of vehicles very low, as in Tesla’s case.

I had a very inexpensive fix to my Ford Focus EV last year. Like less than $2k for being hit and spun, requiring repairs to 6-7 body panels.

EV manufacturers could make cars that are as durable as ICE ones but they choose not to - limited liability for such crashes is the way forward.

The parts market transformation for tier-1 parts suppliers is far more complicated. What’s happening is that the legacy parts (panels) are coming from a different management pool than the EV components and parts suppliers are scrambling to change their strategies.

Take a look at how parts suppliers are segmenting their businesses and it will make sense (article below).

I completely agree with your conclusion, but none of the manufacturers have incentives that line up with limited liability.

https://www.bcg.com/publications/2023/growth-strategy-tier-o...

> Suppliers looking to formulate a successful portfolio strategy should begin with a careful review of their existing product groups, broadly allocated to three segments based on their growth and profitability outlooks.

- Booster parts. The major source of growth, this category includes such trend-driven parts as advanced driver assistance systems (ADAS), battery management systems (BMS), and fuel cells. These parts offer generally greater profitability, though profits will depend on the specific niche—higher for software, lower for increasingly commoditized segments like power electronics.

- Carry-over parts. These include a range of parts that will be predominantly trend-agnostic and stable, such as exterior parts, HVAC, seating, lighting, and the like. Profitability for this category will generally be stable.

- Legacy parts. These include ICE engine systems and conventional transmissions, exhaust systems, fuel systems, and older generations of electronics and human-machine interface (HMI) systems no longer applicable for connected cars—all of which are generally declining as a result of trends in mobility. In general, future profitability for this category of parts will be declining as suppliers struggle with overcapacity.

> Many tier-one suppliers will likely offer a mix of all three types of products. A proper portfolio strategy, however, will require the development of a separate, distinct strategy for managing each product group.

I think this may be why manufacturers like Kia/Hyundai offered so many models that are ICE/hybrid/EV versions (see 2017-2022 Ioniq, Niro), now just ICE/hybrid/PHEV (Sportage, Sorrento). Could be their answer to parts availability contracts for their tier-1 suppliers.

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.

That’s not an insurance visible issue, but “normal wear and tear”, i bet.

BMW replaced The battery in my 2014 i3 (no rex, pure ev) in 2021 because of a faulty heat pump that let the battery roast in Arizona heat. They paid even though technically out of warranty and shipped the entire battery back to Germany to do forensics, and the work order showed $25k part cost, in summer 2021, that they spent, so that fits.

>Like the 2024 Lexus GX has a hutch included in every model (yay, finally),

Why would you want one of these on your car? https://en.wikipedia.org/wiki/Hutch_(furniture)

El typo struks again.

Just like evolution is a product of simple mistakes in DNA replication, human innovation is frequently the result of simple mistakes. So this typo is likely to result in the next big trend in automobiles: built-in hutches! I'm sure some entrepreneur is working on it now.

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:

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.

> 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.

I think I'd rather you bend your frame when towing inappropriate loads than the hitch intentionally shear off and your load goes independent on the highway.

The shear effect generally require forces far beyond trailer loads (think impact forces).

We aren't talking "towing of inappropriate loads" levels here, and trailers heavy enough to cause such worries (by being too heavy for the frame of a, say, Prius, not just overloading the transmission/brakes) really ought to have their own brakes.

The only reason these forces don't already disintegrate the frame is that it's designed to absorb energy by deforming, so that if your stopped with you head nicely braced and a same model car (not truck!) rear-ends you perfectly straight with say 80-ish mph, you can have a chance of surviving, by way of your rear frame delaying the kick to your seat and sacrificially tanking a good part of the kinetic energy the other car brought to your situation.

Similarly, your front is designed to absorb energy to hopefully not rip your head off your neck if you run straight into a solid concrete wall, and do so while directing the crumpling to hopefully also not squish your legs (as you very quickly bleed out from the major blood vessels supplying your legs).

This is the way it’s always been done and it’s highly effective. The move to welding it to the frame doesn’t make it less reliable, it saves manufacturing cost and complexity.

> just look at the cost of replacing the headlight on a 2024 f-150 — it is almost 1400 bucks, plus labor. Each.

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.

>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.

> Add in cash for clunkers

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.

Don’t muddle terms, cash for clunkers specifically ended in 2009. Cite the Californian program if you’re referring to that.

Sounds like it's probably the Consumer Assistance Program Vehicle Retirement [0] .

[0]: https://www.bar.ca.gov/consumer/consumer-assistance-program/...

Are you claiming with a straight face that the only vehicle safety improvements in the past third of a century are "feedback messages while driving and constant location tracking"?

The program certainly achieved those things.

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.

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.

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.

Just look at what they charge. At least half my policy is collision. I maxed out liability at half a million and it’s about 10% of my bill.

Wait a second, are you saying your car insurance will cover damages for up to half a million?

Yes. I’d like more, but that was the most I could do. I think the minimum is 25 grand. If I get run over by a car, I do not think 25 grand will quite make up that loss to my family.

Often you can get a higher limit through an umbrella policy.

Yeah 25K is nothing. I just checked and apparently minimum here is 6.25M for damages to people and 1.3M for damages to things.

I ran a quote with my name/address (WA 98110) and my 2003 s-10 with progressive, because they're relatively easy. I don't think they pulled my records, but they did know about my cars from my address, so... Long term driver, no tickets or accidents in 20+ years; 42 year old male.

It's common to have coverage will be reported as single injury/multiple injury/property in thousands. Six months coverage, paid up front.

For state minimum 25/50/10, I've got a quote of $117.

The max separate limit quote is 250/500/100 for $158.

They also quoted a combined single limit (which I think can be used for any mix of injury and property damage?) from 100k for $134 to 500k for $165.

This is just for liability. Uninsured/underinsured coverage is extra (I'd recommend it, but leaving it out for ease of comparison). Comprehensive and collision is extra (and I wouldn't get it on a 20 year old vehicle unless it's a collector's car, but that probably needs specialty insurance).

From this quote (which may not be accurate or representative, more data welcome), it seems like paying about 50% more, takes the coverage from about $60k to about $500k of liability. It doesn't make a lot of sense IMHO to not consider taking the max coverage. If you want more, umbrella policies are available and also not usually very expensive until somewhere around $5-10M of coverage, depending on your insurer.

So I’m in Italy. Regular car insurance, nothing particularly special. I’m covered for damages to people, cars, and other properties for up to 25M €

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.

Insurance finally catching up to the real costs of insuring drivers

The real costs of theft and personal injury lawsuits.

This caught my eye

> 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.

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.

I think you misunderstood. Under the California vehicle code that would usually be charged as reckless driving rather than a simple moving violation.

https://www.eastonlawoffices.com/blog/reckless-driving-examp...

> 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.

This is mind-blowing, but it would be surprising to find this would happen without additional consequences. A friend of mine was ticketed for 20 MPH over the speed limit (not in California) and had his license suspended. Most states in the US adopt a points-based system that triggers suspension when you acquire sufficient numbers. California is no different.

They can. Highways in California are filled with people averaging 20mph over and it’s rare to see anyone pulled over.

That would also be reckless driving in LA.

Seventy over in Lousiana or Los Angeles?

In California, my understanding is there's three classes of speeding ticket (1-15, 16-25, and 26+), but there's also a separate offense for doing over 100 mph [1] that allows for a license suspension of up to 30 days at court discretion on the first offense, with mandatory suspensions on further offenses. Additionally, I think you commited both the basic speeding and the 100+ speeding. And as a sibling remarked, you're likely to catch a reckless driving charge too.

Entertainment media isn't always the best way to get legal information.

Also, the cost of a ticket is the fee by law, plus a bunch of court fees and other stuff. IIRC, when I had a speeding ticket near Los Angeles, the fee by law was about 1/3rd the overall cost. I had to deposit the full fees in order to contest the ticket.

[1] https://leginfo.legislature.ca.gov/faces/codes_displaySectio...

France is closer to Australia. If you're caught driving 30+ km/h (18 mph) over the speed limit, tailgating (reckless passing would be the translation), pass a red light, or caught for DUI (or half a dozen more cases I think), you loose your license temporarily, until you get a medical exam and pass 'in front' of a judge (I think actually you do not have to present yourself or have representation if you agree with the facts). You then lose your license for a week to two year. If it's for 6+ month, you have to pass psychometric tests to get it back (unless you're 90, you will easily pass those). You can still drive licenceless cars.

Having received speeding tickets in california, the fine is only the base charge. The total ticket is usually 3 to 4x the cost of the base fine. All in, 99 in a 75 was ~$500 a decade ago (100 in a 75 is reckless driving, and a whole different level).

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 took a couple of year break from the US; things seems to have gotten much worse.

I have decades of driving experience in the US, and even I find it a difficult environment to drive in. People are just extremely unpredictable and are apparently always in a hurry if they aren't instead slyly stroking their Instagram feeds on phones nestled in their cupholders. Maybe it's worse in California, but it seems pretty bad everywhere.

It’s worse today, cops everywhere aren’t enforcing traffic laws much anymore, probably due to a general shortage of cops, and drivers are getting feral.

Though there are places in the USA that have always been especially bad. I have nightmares about driving in New Orleans, and Florida was always 80-85 once you hit the freeway. California, even LA, is easy mode in comparison.

Driving in Texas is hellish at best.

> the objectively atrocious driving record of Americans

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...

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.

> compared to other high income countries

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?

I'm sorry, but I don't consider in the bottom half of deaths per capita "objectively atrocious," merely "fairly bad."

Have you considered improving the precision of your vocabulary?

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.

That's not how the insurance industry works. Furthermore, EVs aren't necessarily cheaper to repair or replace: rather the opposite.

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)

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