question: Why don’t car insurance premiums decrease automatically as the car deprecates?
comment: The expensive part of car insurance is the liability part: the amount of damage you are statistically likely to cause to others doesn't change because your car is older.
passages: In a white paper titled “Marketplace of Change: Automobile Insurance in the Era of Autonomous Vehicles,” KPMG estimated that personal auto accounted for 87% of loss insurance, while commercial auto accounted for 13% in 2013. By 2040, personal auto is projected to fall to 58%, while commercial auto rises to 28% and products liability gains 14%. This reflects the view that personal liability will fall as the responsibility of driving shifts to the vehicle and that mobility on demand will take greater hold. In addition, with the view that the overall pie representing losses covered by liability policies will shrink as autonomous cars cause fewer accidents.
   In the UK and in the US, third party damages and costs have decreased by 10% and 40% according to some insurances.
  
  Efficiency varies depending on analysis, according to the European Commission:
  
  BULLET::::- 38% drop in accidents according to Fildes, 2015
  
  BULLET::::- 9%-20% drop in collision according to Volvo
  
  BULLET::::- 44% drop according to Ciccino
   Some market organizations may give rise to inefficiencies associated with uncertainty. Based on George Akerlof's "Market for Lemons" article, the paradigm example is of a dodgy second-hand car market. Customers without knowledge of whether a car is a "lemon" depress its price below what a quality second-hand car would be. Information asymmetry arises here, if the seller has more relevant information than the buyer but no incentive to disclose it. Related problems in insurance are adverse selection, such that those at most risk are most likely to insure (say reckless drivers), and moral hazard, such that insurance results in riskier behaviour (say more reckless driving).
   Future profits can thus be seen to be an inadmissible asset - an asset which may not (from the regulator's point of view, anyway) be taken into account. (Current developments, particularly Solvency 2 in Europe, will likely base solvency tests on marked to market assets and liabilities, thereby including some value for future profits. Solvency 2 looks more like banks' Value at risk.)
  
  Section::::Fin Re for Life Insurers.:A banker's perspective.
   BULLET::::- In 2014 Cartell called for Regulation of Written off vehicles in Ireland estimating there were over 200,000 write offs in the Irish fleet at any time. . A subsequent article in the Irish Examiner reported that six deaths a year caused by written off cars
   In 1982, Robert J. Shiller published the first calculation that showed that either a large risk aversion coefficient or counterfactually large consumption variability was required to explain the means and variances of asset returns. Azeredo (2014) shows, however, that increasing the risk aversion level may produce a negative equity premium in an Arrow-Debreu economy constructed to mimic the persistence in U.S. consumption growth observed in the data since 1929.
   Insurance relies upon sound actuarial data against a largely static background of risk. Given that these don't exist at present it is unlikely that either the buyers of these products will achieve the value outcomes that they desire.This view of the market is reflected in the current market state where standard exclusions result in a situation where "An insurer could argue they apply to almost any data breach".
  
  Section::::History.
   As of November 2012, no-one precisely knew how the ECJ’s decision would impact the insurance industry. However, in the case of car insurance, many analysts expected the price of women’s vehicle cover to substantially increase while men would see a slight reduction in the cost of their premiums. Although some believed the decision would lead to a fairer system, the Association of British Insurers opposed the decision.
   With regard to claimants themselves, proponents of private insurance argue that competition will force private insurers to treat claimants as fairly as possible, since insureds will simply change providers if they feel mistreated. The counterargument to this is, given that all private insurers have similar profit pressures, they will all be similarly reluctant to pay benefits in order to increase their profit margins, thus resulting in insureds being poorly served no matter which insurer they choose - whereas a public insurer operating on a long-run break-even basis would have more flexibility to fully compensate claimants.
   There is no guarantee, however, that any savings from tort reform would be efficiently distributed. Tort reform in Texas during the 1990s created $600 million in savings for insurance companies while the fraction of policy dollars needed to cover losses fell from 70.1 cents in losses in 1993 to 58.2 cents in 1998.
   With the onset of fully autonomous cars, it is possible that the need for specialized automobile insurance disappears and that health insurance and homeowner's liability insurance instead cover automobile crashes, much in the same way that they cover bicycle accidents. Moreover, as cases of traditional negligence decrease, no-fault insurance systems appear attractive given their benefits. It would provide compensation to victims relatively quickly and the compensation would not depend on the identification of a party at-fault. In such systems, individual drivers would be well protected and would encourage the adoption of autonomous cars for its safety and cost-related benefits.
   A change to any of this information might result in a different premium being charged if the change resulted in a different actuarial class or risk level for that variable. For instance, a change in the drivers' age from 38 to 39 may not result in a different actuarial class because 38- and 39-year-old people may be in the same actuarial class. However, a change in driver age from 38 to 45 may result in a different premium because the records of the insurer indicate a difference in risk associated with those ages and, therefore, the age difference results in a change in actuarial class or assigned risk level.
   Insurance companies have started using credit ratings of their policyholders to determine risk. Drivers with good credit scores get lower insurance premiums, as it is believed that they are more financially stable, more responsible and have the financial means to better maintain their vehicles. Those with lower credit scores can have their premiums raised or insurance canceled outright. It has been shown that good drivers with spotty credit records could be charged higher premiums than bad drivers with good credit records.
  
  Section::::Basis of premium charges.:Behavior-based insurance.
   Information asymmetry has a significant negative effect on most insurance environments, where typical considerations include inability to distinguish between users of different (high and low risk) types, i.e., the so-called adverse selection problem, as well as users undertaking actions that adversely affect loss probabilities after the insurance contract is signed, i.e., the so-called moral hazard problem. The challenge due to the interdependent and correlated nature of cyber-risks is particular to cyber-insurance and differentiates traditional insurance scenarios (e.g., car or health insurance) from the former. In a large distributed system such as the Internet, risks span a large set of nodes and are correlated. Thus, user investments in security to counter risks generate positive externalities for other users in the network. The aim of cyber-insurance here is to enable individual users to internalize the externalities in the network so that each user optimally invests in security solutions, thereby alleviating moral hazard and improving network security. In traditional insurance scenarios, the risk span is quite small (sometimes it spans only one or two entities) and uncorrelated, thus internalizing the externalities generated by user investments in safety, is much easier.
   Increases in the use of autonomous car technologies (e.g. advanced driver-assistance systems) is causing incremental shifts in the responsibility of driving, with the primary motivation of reducing the frequency of road accidents. Liability for incidents involving self-driving cars is a developing area of law and policy that will determine who is liable when a car causes physical damage to persons or property. As autonomous cars shift the responsibility of driving from humans to autonomous car technology, there is a need for existing liability laws to evolve in order to fairly identify the appropriate remedies for damage and injury. As higher levels of autonomy are commercially introduced (SAE automation levels 3 and 4), the insurance industry stands to see greater proportions of commercial and product liability lines, while personal automobile insurance shrinks.
   Although KPMG cautions that this elimination of excess capacity will bring about significant changes to the insurance industry, 32% of insurance firm leaders expect that driverless vehicles will have no material effect on the insurance industry over the next 10 years. Inaction by the large players has opened up opportunities for new entrants. For example, Metromile, an insurance provider start-up founded in 2011, has started to offer usage-based insurance for low-mileage drivers and designed a policy to complement the commercial coverage of Uber drivers.
  
  Section::::Public statements from car manufacturers.
   The Lloyd’s Managing Cycle report has several problems. It focuses on the industry as a whole being able to work together to reduce the effect of market fluctuations. However, this is somewhat unrealistic, as if underwriters do not write business in a soft market (i.e. at cheap prices for the customer), it will be hard to win this business back in a hard market due to loyalty issues.
   Depending on the jurisdiction, the insurance premium can be either mandated by the government or determined by the insurance company, in accordance with a framework of regulations set by the government. Often, the insurer will have more freedom to set the price on physical damage coverages than on mandatory liability coverages.
   In response, the company may increase premiums. However, higher prices cause rational non-smoking customers to cancel their insurance. The higher prices combined with their lower risk of mortality make life insurance uneconomic for non-smokers. This can exacerbate the adverse selection problem. As more smokers take out life insurance policies and increase the insurer's mortality rate, its prices will continue to rise, which in turn will mean fewer non-smokers will purchase insurance. Eventually, the higher prices will push out all non-smokers and the insurer will also be unwilling to sell to smokers. No more interactions will take place, and the life insurance market will collapse.
   Depending on the value of the COE at the time of renewal vehicle owners are subjected to a somewhat emotional dilemma of whether to pay for a new COE which can amount to more than the market value of the vehicle or to deregister their vehicle. The emotional dilemma is certainly enhanced when the vehicle owner is forced to deregister and scrap an otherwise road worthy vehicle due to lack of time or insufficient funds to afford the COE at the prevailing rate.
   Between two parties who are not negligent (manufacturer and consumer), one will necessarily shoulder the costs of product defects. Proponents say it is preferable to place the economic costs on the manufacturer because it can better absorb them and pass them on to other consumers. The manufacturer thus becomes a de facto insurer against its defective products, with premiums built into the product's price.
   Motor insurers in the UK place a limit on the amount that they are liable for in the event of a claim by third parties against a legitimate policy. This can be explained in part by the Great Heck Rail Crash that cost the insurers over £22,000,000 in compensation for the fatalities and damage to property caused by the actions of the insured driver of a motor vehicle that caused the disaster. No limit applies to claims from third parties for death or personal injury, however UK car insurance is now commonly limited to £20,000,000 for any claim or series of claims for loss of or damage to third party property caused by or arising out of one incident.
   In taking this conservative perspective, one of the steps taken is to effectively ignore future profits. On the one hand this makes sense - it's not prudent to anticipate future profits. On the other hand, for an entire portfolio of policies, although some may lapse - statistically we can rely on a number to still be around to contribute to the company's future profits.
   In Sweden, following the change from driving on the left to driving on the right in 1967 there was a drop in crashes and fatalities, which was linked to the increased apparent risk. The number of motor insurance claims went down by 40%, returning to normal over the next six weeks. Fatality levels took two years to return to normal.
  
  Section::::Examples.:Road transport.:Speed limits.
   The address of the owner can affect the premiums. Areas with high crime rates generally lead to higher costs of insurance. 
  
  Section::::Basis of premium charges.:Gender.
  
  Because male drivers, especially younger ones, are on average often regarded as tending to be more aggressive, the premiums charged for policies on vehicles whose primary driver is male are often higher. This discrimination may be dropped if the driver is past a certain age.
  
presuppositions: The expensive part of car insurance is the value of the car itself. Car insurance premiums are mostly based on the car's age.
corrections: The expensive part of car insurance is liability against damage to other cars. Car insurance premiums are mostly based on liability.
raw_presuppositions: The expensive part of car insurance is the value of the car itself. Car insurance premiums are mostly based on the car's age.
raw_corrections: The expensive part of car insurance is liability against damage to other cars. Car insurance premiums are mostly based on liability.