Study Shows Drivers of Older Cars Are Ditching Optional Coverages

Information-services firm Quality Planning says escalating economic pressures and growing insurance IQs are leading American policyholders to increase their exposure on optional physical-damage coverages in order to cut car insurance costs.

The firm’s conclusions are based on a study analyzing 2006–2010 comprehensive and collision policy data from a sample that included 59.8 million vehicles.

They found that the numbers of older vehicles with comp and collision protections declined every year during that 5-year period and that those who did purchase those protections opted for higher deductibles.

Unlike liability insurance, comp and collision are not required coverages in any state in the nation. They pay to fix physical damages to a policyholder’s auto when they are caused by an accident in which the policyholder was at fault, as well as damages caused by theft, acts of nature and other events.

Average auto insurance costsBecause these cover only repair costs to the insured car, industry sources often promote dropping comp and collision on cars that are older and less valuable as a means of getting more affordable auto insurance payments.

And according to the Quality Planning study, consumers have been listening. The proportion of older cars in the sample group—meaning those that were between 1 and 10 years old—that had optional physical-damage coverage was 47 percent in 2006. By 2010, it had dropped to 38 percent.

“For consumers, this yielded a monthly out-of-pocket savings of $19 a month, or $229 annually,” according to the report.

Quality Planning did not report a similar decline in the purchase of comp and collision for newer vehicles. This may be attributed to the fact that many financial institutions require new-car owners to have these physical-damage protections as a condition for a loan.

When the owners of the cars in the study did purchase collision coverage, the firm found, they opted for higher deductibles (the dollar thresholds at which coverage actually kicks in).

The report broke down deductible levels into two categories: low, which included deductibles in the zero–$100 and $101–$250 levels, and high, which included those at the $251–$500 and $501–$1,000 levels.

When a policyholder goes from a low to a high deductible, he or she is paying more in premiums but is also reducing the amount of money that will need to be paid out of pocket in the event of an accident. Lower deductible levels mean less risk.

According to the study, policyholders increasingly opted for higher deductibles between 2006 and 2009. The number with low deductibles in place declined at a rate of 9 percent annually during that period, while the amount with higher deductibles increased at an average of between 1.6 percent and 4.9 percent annually.

The authors of the report noted that there were actually increases in the percentage with deductibles in the $101–$250 and decreases in the $501–$1,000 category in 2010. They attributed this to the popularity of the “Cash for Clunkers” program that saw many older car owners switching out for newer models.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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