SUV Owners
Red-Flagged www.cbsmarketwatch.com - Kristen Gerencher
01/13/03 - Perched higher on the road and surrounded by more bulk weight,
drivers of sport-utility vehicles enjoy a greater level of safety in accidents,
often at others' expense.
Many are beginning to pay more for that perceived safety in the form of higher
auto-insurance premiums.
The insurance industry is looking closely at its claims data to determine how
the mounting presence of SUVs - which now account for 21 percent of new car
sales - is affecting damage and injury claims from drivers of subcompacts to
full-size cars.
The idea of pricing according to the damage that individual SUVs inflict is
beginning to catch on among insurers, said Bob Hunter, director of insurance for
the Consumer Federation of America.
While the Insurance Institute for Highway Safety doesn't measure crashes for
impact on other cars, the physics of an SUV's impact on a smaller car is well
demonstrated in insurance claims because of the weight difference, he said.
"The people in the SUV are going to do better given a certain degree of
force in an accident than people in a car."
As a result, many insurers are starting to surcharge the liability premium,
which covers others involved in a crash, while giving a discount for the medical
premium, which pays for injuries that occur inside the SUV, but one usually
doesn't offset the other equally, he said. The liability line often comprises 40
percent of the total premium while medical payments make up just 10 percent.
"You're going to pay less for medical payments and more for liability, but
since liability is a much greater share of the premium, if you're an SUV owner,
your policy is going to cost more," Hunter said.
"The SUV policyholder will pay about $40 more than a typical car for
liability and medical payments combined for occupant protection in and out of
the car."
Safety a driving factor
To be sure, a perception of invincibility helps make midsize and large SUVs a
popular choice among U.S drivers.
In fact, light trucks, which include SUVs, pickups, vans and minivans, outsold
passenger cars for the first time in U.S. history in 2001, comprising 51 percent
of the market, according to the Alliance of Automobile Manufacturers.
But SUVs aren't just taking over America's roads -- they're also increasingly
redefining how insurers rate their injury risk. State Farm, the No. 1 U.S. auto
insurer with 40 million policyholders, is studying the issue. Allstate began
evaluating SUV liability separately in 1999. Progressive has been in the habit
since the 1980s.
Allstate and Progressive charge different rates for bodily injury liability
caused to others outside the SUV, and for medical payment or personal injury
protection, which covers the vehicle's occupants, Insurance Information
Institute spokeswoman Carolyn Gorman said.
"They have claims history that show large, high-riding, heavy duty SUVs do
cause greater damage to other people and cars," she said. "They do
charge higher premiums based upon the size of the SUV."
Allstate, for example, sees liability losses in the large SUV group, including
the Lincoln Navigator and Ford Excursion, coming in 7 percent higher than the
average for all vehicles, and the company began passing along those expenses two
years ago, spokesman Mike Trevino said. At the same time, it gives breaks up to
15 percent in the medical payment category for SUVs that do a good job
protecting their passengers.
"What Allstate is doing is attempting to price the policy more
accurately," Trevino said. "The new rating methodology accounts for
the different loss experience that vehicles have. If your vehicle has a higher
liability cost if that vehicle type is causing more injury or more damage to
other cars then that's being reflected in the rate."
The attitude is similar at Progressive, spokeswoman Leslie Kolleda said.
"We're in the business of pricing a policy to recoup our costs. If a
particular make and model, whether big or small, has a claims history greater
than a similar make and model, then we price them differently to the make and
model."
Reviewing its records
Despite other insurers' moves to price SUV rates separately, State Farm doesn't
rate liability to outsiders differently based on make and model history. Still,
it offers a "vehicle safety discount" on the medical payments side
according to its claims data, spokesman Dick Luedke said.
One reason for the pricing imbalance is that larger vehicles tend to be involved
in fewer crashes, he said. "The severity tends to be greater when involved
with another car, but the frequency seems to be less. I'm not sure why that's
the case, but it makes sense that larger vehicles are easier to see and when
you're in a larger vehicle, you tend to be up a little higher and you can see a
little better."
"The extent of the injury you sustain in an accident has much more to do
with the vehicle you're in than the vehicle that hits you, if there's another
vehicle involved in the crash," Luedke added.
Still, the company is studying whether it makes sense to start calibrating
liability rates to its claims patterns, he said. State Farm is "weighing
the ability to measure it perhaps a little more accurately versus the cost of
administering the system."
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