A safer car means lower insurance premiums
Insurers offer premium discounts for vehicles with high safety ratings because safer vehicles are more profitable to insure. Safety ratings are based on National Highway Traffic Safety Administration testing for crash resistance, rollover potential, passenger safety and other issues. The NHTSA 5 Star safety ratings system assigns one to five stars based on test results.
They identify active safety features such as Electronic Stability Control, Lane Departure and Collision Warning and Anti-Lock Brakes. Such highly rated safety features help render a vehicle less apt to be in a collision. That means fewer claims, less money paid out on an insured’s behalf, and lower premiums for an insured due to reduced risk.
The economics of auto accidents and safety
Crash tests are an important part of the safety rating process. They allow researchers to measure and document the damage done to a car and its test dummy occupants while traveling 35 miles per hour. Those results are taken into account when the NHTSA issues a safety rating. An insurance company can reasonably believe that when a vehicle with lower safety ratings is involved in an accident, it will have a higher economic impact than those rated high for safety. That means more vehicle damage and more severe passenger injuries.
Claims involving cars rated high for safety have the opposite expectation. They will likely sustain lower levels of vehicle damage and passenger injury severity will be reduced. Reduced claim payouts mean higher underwriting profits, which is why insurance companies are in business in the first place. It’s in their financial interest to offer premium incentives to owners of vehicles that are highly rated for safety because they will cost less in the long run.
Safety ratings are one of the easiest underwriting factors to change
Auto insurers like Allstate and State Farm calculate insurance premiums based on a number of underwriting factors. At the head of the list are personal details such as age and driving record. Residence is also a consideration because living in an urban area like Boston or New York can mean bumper-to-bumper traffic and lots of accidents. The vehicle presented for coverage can be an important positive or negative as well. Underwriters really do rate those performance features and safety options you may have thought were too expensive when you purchased your car.
It’s not so easy to change most underwriting ratings factors. It can take years to get a history of bad driving off a formal record. A person is not likely to give up their urban flat or city condo for the sake of lower insurance premiums. It’s far easier to make the switch to a vehicle that’s highly rated for safety than it is to change other underwriting factors. When you do, it can mean years of savings.