Driving from Bloemfontein to Johannesburg last evening alerted me to the significantly higher risks of road accidents in our bigger cities. Driving at 19h00 in Johannesburg is a totally different proposition to driving at the same time in Bloemfontein. There are simply many more vehicles on the road and the drivers appear to be more aggressive.
But how important is where I live when my car insurance premium is calculated? Location is not only important for car insurance premiums, but also for household and other short term insurance. Actuaries use historical claims data and crime statistics to calculate the perceived risk – and it is common sense that the insurance risks are much lower in rural areas or smaller towns!
But is this not discriminatory?
I have come across a very interesting article on the Detroit Free Press on this topic. It appears that a bill by state Sen. Martha Scott that would ban insurance companies from using territorial ratings to help set rates, was soundly defeated last week in the Republican-controlled Senate.
This is said to be a big disappointment for Scott and for many others who believe that insurance companies shouldn’t penalize drivers for where they live.
This bill was seen as an effort to control unaffordable urban insurance rates. Unaffordable insurance rates have become an urban crisis, driving people out of cities like Detroit and practically forcing more than half the drivers in some neighbourhoods to go without insurance, or in some cases commit fraud to secure coverage at more reasonable rates.
Interesting facts revealed in this article include:
- Paying $4,000 a year for car insurance isn’t unusual in Detroit, the nation’s poorest big city.
- Statewide, an alarming 17% of motorists drive uninsured, up from 11% in 1989.
- Uninsured drivers put themselves at great risk and can even reduce what insured drivers collect in accidents.
- Since Government in the US requires people to buy insurance, it is argued that it should also help control the costs.
We have on the Car insurance Blog addressed the topic of finding cheaper car insurance by focusing on the specific needs of the insured. We have also referred to the area where the vehicle owner is regularly driving in this discussion. It is important to be alert of the impact that location might have on your insurance and to communicate changes in risk profile to the insurer.
We often find that older vehicle owners move to smaller towns at the coast or rural areas when reaching retirement. They tend to drive less and their driving is in less congested traffic. But do they benefit from these reduced risks? No insurance company will automatically reduce car insurance premiums. The insurer will not be aware of a change in risk profile if such insurer is not alerted to the change!
It is clear that the area where you live is very important – not only to your emotional well-being, but also to your pocket. The money might be in the cities – but this might come at a cost as well! Perhaps the smaller towns or cities do have a few additional benefits!