San Francisco Chronicle
State Farm, the nation’s biggest automobile insurer, unveiled a new pricing policy yesterday that offers hefty discounts to drivers of sport utility vehicles, vans and luxury cars. The company maintains that those vehicles are the safest for their occupants and have generated the fewest insurance claims.
Consumer groups labeled the move “a disaster.”
“It’s the worst possible thing that an insurer can do,” said Dan Jacobson, consumer program director for the California Public Interest Research Group in Sacramento. “An SUV may protect the people inside it, but it does a heck of a lot of damage to anyone it hits.”
Jason Kercher, a State Farm spokesman at the company’s regional office in Rohnert Park, defended the decision as a way to treat drivers of safer vehicles more fairly.
“We’re here to serve all policy holders fairly and equally,” he said.
Nevertheless, Kercher was at a loss to explain why a driver of a Honda Accord — arguably one of the safer cars on the road — should be seen as a greater insurance risk than a driver of a Chevrolet Suburban, which faces a greater danger of rollovers and can inflict maximum damage on other vehicles in the event of an accident.
“It’s not a perfect process for choosing premiums,” he said, “but we still think it’s one of the better ones.”
State Farm‘s new system will replace the across-the-board discount now given for all vehicles with air bags. Other leading insurers are expected to revamp their pricing policies along similar lines.
The new rates will take effect Jan. 1 in most states but still have to be approved by California authorities. It may take until next summer before the rates are applied to California drivers.
In essence, State Farm is cutting premiums by up to 40 percent for vehicles that in the past have generated the fewest injury claims for occupants.
These include the Chevrolet Suburban, the GMC Savana, Ford F150 and F250 pickups, the Chrysler Town and Country, the BMW 740i, the Audi A6, the Mercedes-Benz E320 and E430s, and several different Volvo models.
Vehicles receiving smaller discounts of between 10 and 30 percent include the the Honda Accord and Civic, the Toyota Camry, the Acura Integra, the Ford Escort and the Buick Century.
Most older vehicles will not be affected by the new rates.
“We have used the real-life laboratory in which millions of State Farm– insured vehicles travel every day to determine the vehicle safety discount assigned to each make and model of car,” State Farm Vice President Gary Grant said in a statement.
“Our claims database is the largest of any insurance company in the United States and is extremely valuable in our effort to accurately measure risk and thereby appropriately price our products,” he said.
State Farm, based in Bloomington, Ill., insures about 37 million drivers nationwide.
CONSUMER ADVOCATES OUTRAGED
Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica, dismissed the new pricing plan as “a sheer marketing ploy to pull in high-end customers.”
“All this PR helps them,” he said. “It tells SUV owners that they can have their rates cut. State Farm isn’t afraid to offend people to get at these drivers.”
Jacobson at the California Public Interest Research Group said the insurer was mistakenly associating the number of claims filed with a vehicle’s actual safety.
“They think that the people who file the fewest claims must drive the safest cars,” he said. “That’s absurd.”
Kercher, the State Farm spokesman, called such criticism “a misunderstanding.”
“We think it’s going to help our policyholders in the long run,” he said. “It will reward people who drive safer cars.”
A key factor motivating the change is the fact that all new cars are equipped with air bags, negating the benefit of earlier discounts given for vehicles with such previously optional features.
By basing premiums instead on the number of claims filed for various makes and models, State Farm believes it is more accurately addressing safety differences between different vehicles.
The new system will apply to about half of the company’s customers — all those with 1994 or later vehicles.