Insurance companies feel sting of fewer teen drivers

Insurers could see less revenue as more parents delay their teenagers' driving. But if accidents are also down, it could mean more profits, too.

By Kim Peterson Apr 5, 2011 1:33PM
Image: Woman with license (© Blend Images/SuperStock/SuperStock)There are fewer teen drivers on the road these days, and while that may be great for other drivers, it's not so hot for insurance companies.

So many parents are keeping their kids away from the wheel, in fact, that Nationwide Mutual Insurance is warning that it may see its premium revenue fall as a result. A Nationwide survey found that almost a third of parents were concerned about the added costs of allowing a teen to drive. One in seven parents said they would hold off allowing their children to drive.

How expensive is it? Nationwide says households shell out an extra $3,100 each year to allow teens to drive. Gas prices are soaring, and everything else seems to be getting more expensive as well.

Auto insurance for a teenager is through the roof. One industry trade group said adding a teen to an insurance policy can increase premiums by as much as 100%, Bloomberg reported. About a third of the parents who do allow their teens to drive have cut back on dining, entertainment and other expenses just to pay the added costs, Nationwide says.

So insurance companies may see revenue drop as families delay teen driving. But those companies are already seeing less money from overall personal auto premiums, Bloomberg reported. Auto-premium revenue has dropped in the past five years for Berkshire Hathaway's (BRK.B) Geico and insurer Chubb Corp. (CB).

One Nationwide executive looked at the bright side, telling Bloomberg that there would be fewer car accidents as a result, which means that profitability would rise.

Nationwide says its teen-driver policies have dropped nearly 7% since 2008. Only about 5.4% of its 4 million auto policies are for teens now.

That seems in line with data from the Federal Highway Administration, which found that the number of 16-year-olds licensed to drive dropped to 31% in 2009 from 37% a decade earlier, Bloomberg reported.
40Comments
Apr 5, 2011 6:51PM
avatar
Insurance companies will find ways to make profits, just like families will find ways to cut costs.  It's a never-ending battle.  I will however, beg to differ with those of you that say 16 years aren't capable of being good drivers, period.  I have an 18 year old and a 16 year old.  Both have driven with us around country roads and the farm since about 12, and by themselves since 14.  They both got learners permits at 14, and they both are accident free. 

We own a towing company, and yes, we clean up quite a few accidents with teen drivers.  But we also clean up lots of adults' cars that have been wrecked as well.  I can't say that one group holds sole ownership of stupid or careless driving.  Some 16 year olds ARE mature enough to drive, just like there will always be that group of 40-somethings that AREN'T. 

It all boils down to parenting--each parent has to decide for each child whether or not they're capable.  Not the government, not the insurance companies, but the parents.

Apr 5, 2011 9:17PM
avatar
The yearly amount insurance companies ask for is often enough to cover the cost of the car that an 18 year old may drive.

With that being said, go ahead and ask people if they give a damn whether or not every single insurance company goes bankrupt tomorrow. As far as I'm concerned, they can suffer a slow and unimaginably painful death.
Apr 5, 2011 6:26PM
avatar

I added my 16 year old son to my auto policy and it essentially doubled.  The cost of him driving an 11 year old car is as much as my husband driving a 5 year old truck and me driving a year old 4 door sedan.  Granted, I have a lot more insurance than the minimum required, as well as an umbrella policy but I am  suppose to be getting multi car and policy discounts.  Even with a good student discount and an additional 5% savings for his completion of 2 hour training at the agent's office, it is still over $100 a month extra.  He has been driving for 2 years now (NO TICKETS AND NO ACCIDENTS) and the premium keeps going up even though his experience has increased and the value of the car has decreased.  Personally, I think insurers should do more to incentivize young drivers to stay accident and ticket free, like give them a $100 rebate or refund if they remain ticket or accident free upon renewal. They are sure not giving it back to the parents in rate decreases. 

 

One factor the article failed to mention is the demographics of that age group.  I know that the number of children in that age group is significantly less than those a few years older. In some school districts enrollment is down 20% from prior years.    The declining enrollment is directly related to a lower birth rate 16+ years ago.   So I don't think it is all based on the economy.  Somehow parents find a way to pay for it. 

Apr 5, 2011 10:49PM
avatar
My daughter will be 18 in a few months and she does not yet drive. Simply because I can not afford to put her on the insurance. When i called to inquire about the cost, I was shocked. My premium would jump from $98 a month to over $326! Needless to say, as a single income, single parent household, I can not afford that! So, she walks to work, about 2 blocks, until she can get up enough money to buy a used car that only needs liability insurance, full coverage is out of the question. And she has to wait until she is old enough to put the car in her name, because If I add her to my policy, even though she would not be driving my car, and will be driving her own, she will be put as primary driver of the newest, more vaulable car! Everything has gotten out of control! From the gas prices to the insurance prices., even the basic necessities in life have gotten to expensive to obtain~ but until the American people ban together, which is not gonna happen, the prices on everything will continue to rise.
Apr 5, 2011 8:40PM
avatar

Insurance companies are all about profits.  While I agree that every business should be able to earn a profit, insurance companies have gotten too greedy and have been allowed to cherry pick who they will provide coverage for - or not - and at what price. 

 

When it comes to paying out for legitimate claims, they dig in their heels, generally pay less than market value and charge extra for continuing your coverage.  And age discrimination doesn't just apply to young drivers.  My father is 76, has an excellent driving record and only uses his vehicle for pleasure.  He wouldn't dream of being on the road in bad weather, either.  However, he is finding that if he wants insurance coverage, his premiums are rising with his age and/or insurance companies are flat out refusing coverage because of his age.

 

With the price of cars, gas and insurance, driving is becoming more of a luxury, although for some it remains a necessity.  And the insurance companies have the gall to whine about lower profits?

Apr 5, 2011 6:40PM
avatar
Insurance companies have been screwing policy holders for decades.  I remember that scam that teen drivers have more accidents, than other people, to justify giving the shaft to teen drivers or their parents DECADES ago when I was 16.  Now, the poor overfed babies are crying about a loss of revenue?  They just admitted a a decades-long conspiracy!
Apr 5, 2011 6:32PM
avatar
I'm 20 years old. I've been driving since I was 17. I would have to say that I think a lot of parents think there kids are driving crazy but don't realize they are getting their driving habits from them. After all the apple doesn't fall far from the tree. You may want to point out mistakes in your kids driving but you don't even realize your own faults :P
Apr 5, 2011 6:50PM
avatar
I have to say maturity level depends on the person not all 16 year olds may be ready to drive but doesn't mean you should punish the few who are. Its called experience and the only way you learn it is by doing. I started driving at 16 and did just fine didn't get in an accident until I turned 20 and the guy who's van I scraped had a cow and cussed off to my dad and acted like a jerk. It really all depends on the person and trust me my mom and I get in arguments about each others driving all the time. You really don't realize your own faults until someone else points it out to you.
Apr 5, 2011 6:12PM
avatar
My daughter, who is almost 18, is a straight A student and has never had any infractions, took our insurance up from $114 to $250 a month - for 2 vehicles. It's really all about profit.   I do notice however that there are many drivers who act like idiots on the road - like more everyday.
Apr 6, 2011 8:19AM
avatar
Where I live, the most dangerous drivers are the soccer moms with suv's. They should be paying the highest premiums.
Apr 5, 2011 5:39PM
avatar
I understand insurance to be pooled risk management.  Where does profit come into that?  The profits for shareholders are just a rake.  Insurance should be non-profit and only benefit those in the risk pool, not opportunistic parasites.  Insurance is high because of profits.  If the profit monies were plowed into funds to cover losses insurance would be much less.  You can put insurance right there with banking, law, and politics.
Apr 5, 2011 10:31PM
avatar

I have to disagree with the stereotype that 16 year olds aren't mature enough to drive. I drop off and pick up mu 15 year old daughter from high school every day. Almost every day, I witness a near accident, incredibly rude behavior and a complete lack of respect for basic road rules and courtesy. Not once has it been a teenaged driver who was the offender. It's always an adult, 99% of the time a woman on the phone with a soccer/cheerleading/dance/or gymnastics sticker on the rear window. (Just an observation)

 

I am a stay at home Mom, so don't get all grumpy with me. Seriously, my peers are HORRIBLE drivers. It astounds me. The kids may not be experienced, but they've more recently studied the subject and are quite frankly, better trained than their parents. My daughter is currently in driver's training and I'll decide about her getting her license later on when she's had some time behind the wheel.

 

I think everybody should have to retest every 10 years or so, and retake drivers ed/training if they don't pass.

Apr 5, 2011 4:14PM
avatar
When I was a teen back in the early 60's my Dad added me to his insurance and it only went up 5% annually.  Today it seems just one teen driving the family car jacks up the rate as much as 30%, that in spite of the fact that more teens get drivers' ed. in high school.  Imagine how much more premiums would be today if we didn't have all those safety features like shock absorbing bumpers and air bags. 
Apr 5, 2011 2:25PM
avatar
Sixteen year olds are too young and too immature to be out on the road driving anyway.  The world has changed, there are many more cars on the road and young drivers just don't have the maturity or experience to deal with all the issues that could arise when they get behind the wheel.  Our son was 18 before we let him get his license.  The insurance didn't go down like we expected but at least he was a better driver at 18 than he would have been at 16.  Really, what the insurance company should be doing, when they realize that accidents are down, is to pass those savings on to other drivers, but of course they won't . . . .
Apr 6, 2011 8:42AM
avatar
My son is 16 years old and just got his drivers license.  He went through extensive (and expensive) in-class training and on-road training.  He received much more training than I did before I got my license.  Is he mature? Well he is as mature as a 16 year old can be, however this added responsibility has given him an increased sense of maturity.  There are strict guidelines that he must adhere to in order to drive, but I felt as a mother (an overprotective one at that) that this was a necessary addition in order to further foster his growth and development.  It is a rite of passage for a young person and I did not want to my own FEARS stifle his growth.

As far as insurance....RIDICULOUS!!!  We have increased from $98 to over $200!  It is insane, but my son is working and I am making him pay half of the additional cost (to offset it and to teach him responsibility).

avatar
the time between 16 and 18 before your child moves out; to college or thru marriage; you have acess to their wereabouts what if they were involved in an accident when they weren't expected somewhere.noone would know that something has happened. i say; get their permit as soon as they can; providing they are mature enough. they get their experience same as u did.  u want to protect them; but u can't. u have to let go. they wont grow if u limit them.
Apr 5, 2011 10:34PM
avatar
I see the ins. industry from both sides. My father was a ins. co. exec. and i own a bodyshop. we still argue today and he's 85yrs. old.They have cut the profit out of my business big time.. If you want to be on thier "LIST" they want discounts on parts and labor , they don't want to pay storage on totaled vehicles,,, huge dicounts on glass. it's all about them!!My shop ins. went up $2,000.00 this year.....Why ???they are making a fortune,you can't believe anything they say,i've been around both sides of this all my life, and the body and glass shops keep getting screwed and the ins. co's. keep making more $$$$$  My son is a DR. and the ins. co's are doing the same thing to him.... It's too bad the direction this country is going.Trust me ,i'm all about making money,but pretty soon big business and the govt. will have it all, I think that's what they want..All the people dependent on them.... pretty sad !!
Apr 5, 2011 6:13PM
avatar
I have 2 sons 16 and 18 and the difference in maturity is so obvious. I hate to say this but 16 year olds are not ready to drive. I pick up my boys at school an these driving kids are a wreck waiting to happen. No respect rude and quite dangerous. 
Apr 5, 2011 10:49PM
avatar
@ Aviator, the reason car ins. is so high is because of all the safety equipment. If you blow an air bag ,it could cost thousands to repair... Check it out...Alot of times they break the windshield. The air bags ,drivers,passengers,side curtains. have to be replaced if deployed. Control module.sensors,seat tracks,seatbelts, clockspring, sensors in the seats. bumpers are the same,plastic junk ,with a styrofoam absorber and a metal bar,it's lightweight but is junk.. All this stuff is very expensive and labor intensive. Don't even get me started on the price of paint and materials.. the ins. co always looks for the cheapest way out.. FOR THEM, They tell you how great they are ,until you need them.. the problem is we need them and they know it , so they can screw you just like,bigoil,bigbanks,big medical,the list goes on . Unless you're rich, you are pretty much screwed ...
Apr 6, 2011 12:16AM
avatar

the ins. comp.'s have brought this on themselves--they wait for kids to hit 16 so mom & dad can start shelling out the big bucks ! not so true anymore . i'v owned a bodyshop for yrs. in a small town, and the amount of 16 to 18 yr old kids driving has been cut in half . mom & dad can't afford the ins. rates, and with gas prices at where they have been for three yrs. "cruising"  is out of the question !! this has also increased the amount of public transportation that is available---the other problem is upkeep for a vehicle (outrageous) is putting it mildly ! we as adults can't take the kids out ,and show them how to do their own maint. . cuz as we open the hood it leaves us breathless, plus in my kneck of the woods-- everyone has to have a 4x4 (16 & 4x4) all i can say is WOW !!

other problems come into focus when ins.co. look at "MIP's" -- now were talken biiiiiiiiiiiiig bucks !!

 

just my opinion.....steven

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
275
275 rated 2
482
482 rated 3
656
656 rated 4
643
643 rated 5
650
650 rated 6
638
638 rated 7
485
485 rated 8
281
281 rated 9
127
127 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
HPQHEWLETT PACKARD CO10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.