Originally Posted by stickyshifter
The question is, if everyone else who didn't claim, why do they have a rate incase. That's the thing I don't get about insurance. For people who never ever claim, they have to subject to the same raises because people they have never seen or known claim like crazy. Why not charge those who claim, say, twice in 5 years or in 10 years. I remember Car and Driver calling the current insurance policies as in Big Brother style policies. And I agree.
Ok, so you are asking that why do you have to pay an increase if I crash?
Well I'll try to keep it short and simple. Lets say I pay $1000/year for my insurance and so do you, and it's paid a year upfront. Now I crash and total my car. Lets say the insurance company pays off the rest of my loan to the bank which is $15,000. I never see a penny of it.
Do you see where this is going yet? Our money only adds up to $2,000/year. The insurance company just paid out $15,000. Doesn't quite even up does it? It would take them 7.5 Years to make up what I just made them loose. You want to run a business like that and put all your eggs in the hope that none files another claim and you have zero output for 7.5 years?
I go and get another car and total that one within 3 months. Yea, my premiums are going up, probably a good bit more than yours. But I'm just one paying customer. I can't possibly make up that huge of a diffrence by myself and expect them to be able to cover me for another 3 months when I total another car. Granted if I"m that bad I would probably be suspended and/or told no more licnse... but that wouldn't do anything to the fact that the insurance company just paid out for 3 cars for me. And all I've still paid them was $1000 for the year.
To be an insurance company, you have to have one main thing. Money. You have to have a large buffer of money. You don't pay for your insurance, you add to the buffer. If you file a claim, you take from the buffer. You don't take from your own personal stash they have been saving up for you. You take from the buffer or more commonly called the "Money Pool". Everybody puts a little bit in, then when one person needs a lot, it's covered and everybody keeps putting in. One person can't fill the pool.