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Buying a small car or hybrid to save money at the pump? Be warned, Big Insurance might get your cash instead of Big Oil. Today’s Wall Street Journal chronicles the tales of woe being told by recent automotive down-sizers. “A 40-year-old male driver would pay an average of $1,704 to insure a 2009 Mini [MINI] Cooper that gets 37 miles per gallon on the highway, according to a study by Insure.com, an online insurance broker. That same driver would pay only $1,266 — a difference of $438 — to insure a Toyota Sienna Minivan, which gets 23 mpg. Similarly, a Honda Civic compact that gets 36 mpg on the highway costs $412 more a year to insure than a Honda CR-V, a small sport-utility vehicle that gets 27 mpg.” The problem: smaller vehicles get in more accidents and those accidents result in higher claims than do larger vehicles, even when driver age and other demographics are factored out. “‘There is always a safety trade-off when you move from a large, heavy vehicle to a smaller, lighter one,’ says Russ Rader, a spokesman for the Insurance Institute for Highway Safety, a nonprofit industry-funded group.” But wait, there’s more!“Alternative-fuel vehicles in general are even more expensive to insure, though several insurers offer discounts for hybrids. In this case, the main culprit is higher repair costs. The 2009 Camry hybrid, for instance, costs an average $1,957 to insure for that 40-year-old male driver, while a similar conventional 2009 Camry costs just $1,302, according to Insure.com.” Ouch, beside the higher purchase cost and the question of eventual battery pack replacement you have a $655/year insurance adder just for buying the hybrid version of your new Camry. At $2.91/gallon for gasoline you have to drive your Camry over 20,000 miles per year for the fuel cost savings of a hybrid (compared to a base 4 cylinder Camry) to recover at the pump to cover the extra insurance cost. Check out the fuel cost compare side-by-side calculator at fueleconomy.gov to do your own comparisons. Mark my words, there will be laws written to avenge this injustice, or at least to try and make math and statistics go away.
27 Comments on “Higher Insurance Costs Whack Small Car, Hybrid Buyers...”
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Would be neat if there was a calculator on TTAC to figure all this out. Is this possible?
Perhaps TTAC could get some base insurance rates from the insurance companies for a few age ranges/areas/popular cars? I’m not one to usually to want more advertising on the site, but a nice TCO comparison would be useful.
I can tell you guys that for very good coverage on my STi (sub 7k miles/year), Neon (sub 12k miles/year), motorcycle, renters insurance, wedding ring insurance and high liability insurance my wife & I are paying $350’ish/month. After about 7-8 claims in the last 2 years (2 vandalism of the STi, 2 times the motorcycle was knocked over while parked in a reserved off street parking spot, and 1 accident by the wife, apartment robbed twice, etc.)
Gas is costing us sub $200, and insurance is about double……I’m sure you all can see why the gas prices don’t bother me too much.
I am surprised at numbers. CR-V is not cheap to insure, I own 2 of them. And explanation from insurance agency is that as SUV’s they are expensive to insure due to cost of damage during rollover. As a matter of fact it was published fact that insurance of SUVs is expensive: 16% higher accident rate vs. cars. I think one has to looks at the root of the problem. When country was drunk on SUVs the price of insurance went up. Country is moving toward smaller cars, wise salesman will invent reason why it is cheaper to insure something which nobody can afford to drive. Let be realistic, if and when economy will recover, the price of oil (gasoline) will follow.
$40/month for full coverage on 2 used vehicles that are paid for. Remind me again why I would want to buy a new car?
Good to know when I buy another vehicle…an I4 midsizer would be cheaper to run than an I4 compact with approximately similiar fuel mileage (if they share the same drivetrain).
“Remind me again why I would want to buy a new car?”
Shhh, you have figured out the secret. Don’t tell anyone or there won’t be any good used cars left.
Our 2005 Mercedes Benz SLK350 is cheaper to insure than our 05 Honda Civic. That didn’t make any sense to me, but it is what it is. More interesting is that our agent said the SLK55 AMG is about $100 / yr cheaper still than the V6 SLK350.
Thats odd…
When I switched from my 1998 Subaru Outback to a 2008 Honda Fit, my insurance only went up 6.00/month to 56/month, and I’m carrying 500k of liability and full coverage.
Are rates for 40 year old males more than for 27 year old males? That doesn’t make much sense.
Follow the money! Insurance premiums are increasing notwithstanding smaller cars are less expensive. The insurance cartel always has a profitable rationale for mimicking trend lines.
This story is not surprising at all coming from the WSJ – who have fallen prey to the theory that they should hate hybrids because they hate the people who supposedly buy them.
Our Prii are plenty cheap to insure. The story’s a load of crap.
This stuff is completely random; you have to have your agent price the exact cars that you’re looking at. When I was car shopping last time a G35 4-door was about the same to insure as a 350Z, despite the usual 2-door bump ($430 vs. $480 every six months), but a Chrysler Crossfire was almost twice as much ($780).
I was expecting the Crossfire to be cheaper than the Z (I was shopping the pre-owned, very cheap 6-speeds, but it tends to be an old guy’s cruiser), but maybe the expensive Mercedes and Karman parts ding it, or maybe there is a premium for insufficient data since the car is so rare.
The Mini is getting hit because it’s a sporty two-door, not because it’s a compact. Also, it gets repaired with BMW parts. Civics traditionally have very high theft rates, and the above article doesn’t mention whether they are pricing a two-door or four-door Civic.
Insurance rates are based on personal history, where a car is garaged, relative repair costs and vehicle fleet history of accidents and repair costs, state liability laws and customs, etc, etc.
Secret message to Robstar – move, fer gosh sakes.
Actually when I lived in a neighborhood that sounds like yours, I never had a nice/desirable car. But I do now. Cost of insuring a 1991 911 C4 – $80/month. Cost of insuring its replacement, a 2007 Cayman S – $88/month. OTOH, the family fleet is 4 vehicles – I guess they figure they make it up on volume.
Insurance is such a scam. This is one of the few areas where it would make sense to make insurance an entirely government-run business. The government mandates that every driver purchase car insurance anyway (and rightfully so), why not actually provide the insurance? All insurance does is pool risk, I don’t see why I should be at the mercy of private companies when all I’m trying to do is pool risk with my fellow drivers
My favorite insurance scam is where they consider the safety of the car. Older cars aren’t as safe as newer cars (98 civic versus 08 civic, for example), so you get dinged potential health costs from an accident for driving the older car and you get dinged for the higher repair costs of the newer, safer car. I’ve watched it happen with my wife’s MINI Cooper S. The repair/replace factor goes down in small amounts as the vehicle safety factor goes up in equal amounts to ensure that State Farm gets the same amount of money every year. The only way to win is to not drive.
The only way to win is to not drive.
You’d think that, wouldn’t you? And you’d be wrong.
See what happens when you’re struck as a pedestrian. If you think they’re unpleasant, they’re worse when you’re not paying them premiums.
We have government automobile insurance here in Saskatchewan and have since 1946. It has some huge advantages (the insurer, SGI, is one of the world’s most efficient recyclers of used automobile parts – if one insurer insurers everybody, it creates tremendous economies of scale in part recycling and salvaging) and some huge disadvantages (we have rather poor choice for insuring homes, businesses, and specialty lines because some insurers don’t bother to come here because there is so little auto insurance to write).
Private carriers can still provide coverage here, but it’s in excess of the statutory default coverage (which on private vehicles like cars and SUVs is $700 all perils deductible, $200,000 third party liability).
Some rates, in case you’re interested… good drivers can get up to 20% off these rates but they’re still indicative. All vehicles 2008.
Ferrari F430 $2,727
Ford Focus $1,165
Honda Accord $1,046
Honda Accord hybrid (’07) $1,056
Honda Civic $1,182
Honda Civic hybrid $1,201
Hyundai Sonata $1,044
Toyota Camry $1,083
Toyota Corolla $1,004
Toyota Prius $1,050
You can’t compare the raw rates directly to other jurisdictions (we have a lot of rural territory; our largest cities don’t exceed 250,000 people; we have very long, cold winters; we have near-pure no-fault insurance* which reduces costs to some degree) but the differentials between vehicles can be very informative.
* – we actually have a choice system, where people can opt out of no-fault and into a tort system, but fewer than 1% of drivers have so chosen.
“My favorite insurance scam is where they consider the safety of the car. Older cars aren’t as safe as newer cars (98 civic versus 08 civic, for example), so you get dinged potential health costs from an accident for driving the older car and you get dinged for the higher repair costs of the newer, safer car.”
That doesn’t sound like a scam to me… that sounds like them doing what they should do, which is to collect premiums that reflect the risk of the vehicle. If I were to drive this:
Sure, the truck is probably cheap as hell. On the other hand, its a bloody death trap. Makes sense the premiums would be higher than a Civic with side air bags.
I dunno, maybe it’s because my insurance is really low, but I don’t have any problem with car insurance companies.
Maybe you have too many points on your license?
That’s why I drive used Mercury Grand Marquis – the insurance is ridiculously cheap, probably becuase of their size, construction, and the fact they have not changed body parts in about 15 years.
Plus, if you do wreck it, finding another one exactly like your old one is not that hard.
Feel how you may about insurance, it is a low-profit industry. Most companies operate on a negative Loss Ratio, meaning they pay more in claims and operating costs than they take in in premium. Even a well run company that is gushing cash makes maybe 5% profit. It is only the scale that makes insurance profitable.
That said, the bulk of what you pay for insurance is paid to lawyers and fraudulent claims. Industry-wide for auto insurance, the cost of bodily injury claims and litigation is increasing, while the cost of repairs and accident rate are decreasing. This leads to an increased cost of insurance, which leads to increased premiums.
toxicroach : That doesn’t sound like a scam to me… that sounds like them doing what they should do, which is to collect premiums that reflect the risk of the vehicle.
If the safety factor went down at a more reasonable rate than it does, yes, I’d agree that it makes sense. My beef is how the safety risk factor seems to have gone up the same amount as the vehicle replacement factor has gone down. The slopes should be very different due to how quickly vehicles depreciate and how slowly major advances in safety are made.
I fully agree that you have a higher safety risk factor comparing a 15 year old car to a brand new one. The factor should be significantly closer when comparing a 3 year old car to a brand new one, though.
BTW, I pay less than $1700/year to insure both my 07 GTI and our 05 MCS. My wife and I both have flawless records.
Quentin:
You are correct, there should be different slopes for medical cost and repair costs, however, repair cost of a vehicle has nothing to do with depreciation. And ‘safety rating’ is more ‘safety history.’ In insurance you pay more for unknowns.
A vehicle with a proven history, for repairs and injuries, is going to be less expensive to insure than an equally safe vehicle without history.
Just another reason to buy used ^_~
NetGenHoon:
How are these companies staying in business year after year if they’re spending more than they’re taking in?
Insurance is a relatively low-profit business. Average returns are under 10% on invested capital. There is a perception that insurance is hugely profitable and that creates a larger demand for shares of insurers than really ought to be demanded. Also, when insurers are profitable (and the insurance business’ cycles ensure occasionally huge profits), the profits are very large indeed, but there are some very lean years to dilute those numbers.
Insurers lose money on operations (a profit on operations is an “underwriting profit”; a loss is an “underwriting loss”). They pay out more on claims and expenses than they get in premiums. Where they earn their profits is in leverage. They invest those unearned premiums and earn returns on them while they wait for claims and administrative expense to occur. Typically very few insurers earn an underwriting profit, except in exceptionally good years.
Also, I have issues with the ease of throwing out the use of the word “scam”. Scams imply an intention to defraud or rip off. I’m sure the odd insurer is dishonest, but by and large insurers are very honest. Rates are not based on what consumers want to pay – they are a reflection of estimated and actual risk. Insurers have to guess conservatively when risk changes (e.g. new safety equipment) until they have statistics about how those changes affect risk.
Airbags are a great example. Intuitively you would expect rates to drop since injury frequency and severity drops significantly. However, airbags are very expensive to replace, and sometimes they deploy in situations where they don’t reduce the harm to the occupants of the car. (Sometimes, in really minor accidents where they might not ought to have deployed, they can create injuries where none would have existed.) These factors mitigate the savings. Does that mean we should outlaw airbags? Of course not; we’re better to pay the same premiums (or even slightly higher) if more people survive car accidents, but you have to take the entire situation into context. You can’t simply look at one factor.
Older autos may be easier and less expensive to repair, and have lower values to pay in the event of total losses, but they tend to be less safe and tend to be in poorer condition, which contributes to accident frequency. Also, older cars, like newer ones, are subject to inflicting damage upon third parties, and as legal bills increase and medical costs go up, and incomes increase, liability payouts for accidents continue to go up. It doesn’t matter if you drive a 1974 Chevrolet Vega or a 2009 Chevrolet Cobalt; you can still cause significant damage in an accident.
Repair costs are definitely a big factor these days. Our small CUV got tagged in the side scarfing both doors and (slightly) moving the center post: $3500 bucks.
Naturally the guy doing the punting was uninsured.
So the state will suspend his license, so he then can’t get to work, loses his job, and don’t expect to squeeze any blood out of that turnip.
thetopdog:
Investment income. We know how well that has been going.
Here in Saskatchewan, Canada, a 2009 Civic is $1311, which is $58 a year cheaper than the CR-V. The Camry is $1083 whether you go with the hybrid or the 2.4L. The V6 version is $34 more. The Mini Cooper, at $1394, is $144 per year more than the Sienna.
As always, do your own research before making a major purchase.
“Remind me again why I would want to buy a new car?”
I bought a new car, but I sure as hell don’t buy full coverage insurance. If you can afford to replace your car, there is zero reason to buy it. Financially, you will always lose when it comes to car insurance. If you finance, you don’t have any choice, but that’s another losing proposition.
As for the story, I think it’s bs. A smaller car brakes and maneuvers better to avoid a crash in the first place and is a smaller target. The only rationale is that small cars simply can’t do much costly damage when they get run over by an SUV, so the SUV gets the sherman tank discount. It’s not a matter of the SUV being safer, it’s that the only thing that can squash it is an 18 wheeler. If everyone drove big ass vehicles, the rates would go through the roof and we would all be less safe.
Good points, Demetri.
One of my friends says his insurance did not go up at all when he traded the minivan for a Prius.