Sensible Basis For A Modest Discount It’S Good Business Fair Rates Are Based On Cost Of Coverage

It’s a basic tenet of providing insurance coverage; the higher the risk, the higher the rates.

Yet some consumer groups were outraged when State Farm Insurance revamped the way it calculates personal injury protection. The change gives small discounts to motorists operating vehicles that are, statistically, the safest on the road. Consumer groups are steamed because the models with the lowest injury rates include a couple of SUVs and an assortment of luxury and near-luxury autos, pickups and vans.

Giving a discount sends the wrong message, they say, because many of these vehicles are expensive or large, or consume too much fuel, or all three. Penalize these drivers and give a break to people with small, inexpensive, fuel-efficient cars, they insist.

Is that really the job of an insurance company? What about providing good service and charging customers based on actual costs? Besides, it’s unlikely that this modest discount is going to sway the average consumer to choose an SUV over a basic sedan.

Let’s do the math. State Farm offers a 40 percent discount on medical payments/personal injury protection premiums for the safest vehicles, but even the lowest-rated new vehicles qualify for a 20 percent discount. So the discount isn’t so big after all. Diminishing it even more is the fact that the medical/injury segment of coverage is only 10-20 percent of the total policy.

Bottom line: a discount of about $50 a year. Some incentive.

Note to real bargain hunters: Go with the sedan. You’ll save more than $50 in gas in a matter of months.

Fuel economy, vehicle expense and inherent vehicle safety are all valid concerns. But remember, the purpose of State Farm’s survey was to establish rates for customers based on which vehicles generated the lowest medical costs in the real world. These statistics have as much to do with how safely the typical owners drive as they do with vehicle design.

But apparently, the consumer groups can’t see the forest for the SUVs. Of 47 vehicles to qualify for State Farm’s best medical discount, only four are SUVs. Of the rest, seven are pickup trucks, 11 are minivans or vans and the majority, 25, are autos.

There’s nothing diabolical about setting rates based on the cost of doing business. It’s called good customer service.