The first and arguably most important factor to recognize about the business of insurance is that it is for profit. Although the effect of the service is socially useful, the companies’ motivation is to maximize the profit resulting from the collection of premium income. Under those circumstances, there’s always pressure on insurers to keep the premium rates high. If savings are made, the stockholders prefer to see their dividends increase rather than the benefits of the savings being passed on to the policyholders. This makes the work of the Insurance Institute for Highway Safety ambiguous. This is a nonprofit organization set up by the insurance industry to research questions of car safety. It has become a thorn in the side of the motor manufacturers and the federal government which is responsible for regulating the manufacturers. By constantly pushing forward with new and better-designed crash tests, more and more vehicles have been exposed as unsafe.
This has pressured the government to update its own testing regime and to change its licensing terms for the manufacturers. So far this is all good.
The most recent models
The latest round of tests by the IIHS looked at seventy-four mid-sized cars and SUVs officially labeled 2013 and 2014. Seven of those vehicles received the highest possible award, recognizing their car design technologies as the best so far. The fact all seven vehicles are fitted with front collision warning and automatic braking systems is a warning to all manufacturers that engineering progress cannot be held back. Safety should be the highest priority.
Should the manufacturers respond positively, the volume of these new safety features will mean the unit cost falls? Safer vehicles become more affordable for all.
What is the reaction of the car insurance industry?
Here comes the irony. The insurance industry pays for the work of the IIHS. There’s a levy on all insurance companies. But so far, the insurers have not begun to offer discounts to those who buy the vehicles fitted with the best of the new safety technologies. This is a “jam tomorrow” approach to running the business. Spokespersons for different insurers are following a set script. They say that as the new systems are built into more makes and models, driving standards will improve and there will be fewer claims. If there are fewer claims, annual premium rates can then fall. Until then, the insurers prefer to wait and see how many claims are made by those driving these new models. They point out that humans drive the vehicles. The mere fact the vehicles have safety technology does not of itself make the drivers safer. The drivers can still do silly things.
The insurance industry is therefore making a rod for its own back. On the one hand it is saying to the manufacturers that they must build safer vehicles and criticizing government for failing to impose stricter regulations, but on the other hand it is refusing to reward those who buy the safest vehicles. At some point the car insurance industry must bite the bullet and reduce the premium rates for those who buy the safest vehicles. That’s the only rational response to the work of the IIHS.