Do safe cars cost more to ensure?

New cars loaded with high-tech crash-prevention gear are having a perverse effect on car-insurance costs: They are soaring.

Safety features such as autonomous braking and systems to prevent drivers from drifting out of their lanes are increasingly available on vehicles rolling off assembly lines. Auto companies and third-party researchers say these features help prevent crashes and are building blocks to self-driving cars. But progress comes with a price.

Enabling the safety tech are cameras, sensors, microprocessors and other hardware whose repair costs can be more than five times that of conventional parts. And the equipment is often located in bumpers, fenders and external mirrors—the very spots that tend to get hit in a crash. Insurance companies, unwilling to shoulder all the pain, are passing some of the cost off to buyers.

Here is more from Christina Rogers and Leslie Scism at the WSJ.


Do we ensure them? I thought we insured them.

No, they are really really happening.

Also, this is effecting my affect.

As Prof. Cowen rarely reads the comments, no need to point out such things.

I don't think this is true. I think he reads a lot more comments than you would expect.

Yes, but I suspect he filters out prior_approvals comments. Either with a script (killfile) or just ignores them.

Same as the rest of us

And yet, a day later, we still have Prof. Cowen displaying his spelling prowess to the world. Possibly because needling him and Prof. Tabarrok about how they seemingly make corrections in response to the comments (in the last couple of days, think an incorrect link noted by one commenter or a minor spelling error involving a contraction) has led to this fine display of an economist seemingly proud of his inability to use the correct term.

Or maybe there is some sort of Straussian mood affiliation virtue status signalling involved - loyal readers are welcome to determine that on their own, of course

"Or maybe there is some sort of Straussian mood affiliation virtue status signalling involved "

It's not really Straussian. You are closer to an annoying attention seeker, than a valuable contributor. They are ignoring you. This gets under your skin because you are an attention seeker.

Ask you assurance company.

When you buy car insurance, you ensure that you car gets hit and sustains thousands in damages, just like buying health insurance with coverage for maturity and cancer ensures a man will both get testicular cancer and impregnate a woman.

Thus Tyler in simply stating collision insurance ensures your car will be collided with.

So not only do we lose more privacy with each tech advance, but we pay more for the privilege?

Just wait until results of "brain prosthesis" start getting pumped.


Of course, insurers see these "safety" features for what they are: sales gimmicks.

I wouldn't call them gimmicks, but do they really increase safety, or are they convenience features? It seems plausible that reduced driver attentiveness will offset potential safety gains.

Since they are new, insurance companies probably don't have good data on their safety.

If insurers throught they were a good idea, they would provide a discount. On rearview cameras we do have data:

"Between 2008 and 2011 - the most recent years for which data was made available by NHTSA - backup cameras more than doubled from 32% to 68% of all new cars sold. But injuries fell less than 8%, from about 13,000 down to 12,000. The improvement in safety has been very gradual from year to year."

Almost certainly all the benefits of backup cameras are in SUVs or similar vehicles, and not smaller cars.

If they were perfect and stopped all back-up accidents, what rate would we expect back-up accidents to fall?

About 8% of cars are replaced each year. If injuries fell 8% over 3 years, and about 50% of new cars over those 3 years have backup cameras, it sounds like, rough ballpark, they are stopping maybe 2/3 of accidents.

And that's assuming that drivers who buy backup camera equipped cars are equally likely to hit pedestrians as other drivers.

And also starting from a zero-baseline of cameras installed in cars. So my handwavey number says they'll stop about 50% of back-up injuries.

What would we otherwise pay to stop 7000 injuries a year?

I do understand the numeric comparison I quoted can be misleading, but most back-up accidents are not caused by the problem that backup cameras don't address: inattentive, texting or inebriated drivers in a hurry, including looking behind the car before starting. There are not that many accidents and fatalities are so small that the stats are volatile, but we've mandated something that makes new small cars more expensive, when the benefits are largely shown for large cars. And now the insurance cost of small cars is rising because of how easily damaged that non-essential part.

An 8% decrease is pretty good for cheap back up cameras.

Vehicles equipped with automatic braking or front-collision warning are less likely to cause a rear-end crash, according to a study released Thursday by the insurance indu33stry.
The Insurance Institute for Highway Safety says automatic braking—which can bring the car to a stop if it senses an imminent collision—can reduce rear-end crashes by 40 percent. Front collision warning—which warns the driver but doesn't brake—cuts the risk of a rear-end crash by 23 percent.

That's not even counting externalities. Once a critical mass of cars on the freeway have autonomous breaking, the probability of a multi-car pileup drops dramatically.

When I was in college I had a car with "autonomous breaking"... :)

safety goes up, insurance goes up.
safety goes down, insurance goes down.

it's almost as if insurance is rent seeking, now that (at least in my state) it is mandated by law.

How's it going to work if it's not mandated?

Home insurance is not mandated (although if you have a mortgage your lender may insist on it).

I'm trying to decide if this is serious or not. In a world in which AAA exists, the answer is obvious.

Insurance is worth buying if the cost of the premiums is less than (the cost of replacing the thing out of pocket + any additional benefits the company offers). Remember, "cost" isn't just money--time, inconvenience, scheduling, and the like are all factors here. I can build home owner's insurance into my budget. I can't necessarily build buying a new water heater into it. If my lifestyle were different I wouldn't care, because I can replace a water heater. But I travel a lot, and my wife can't. That's the sort of non-fiscal consideration I'm talking about.

Also bear in mind that the additional benefits are not trivial. Insurance companies hire lawyers, and pay them MUCH better than I could pay one on my own. So, for example, when someone sued me for an accident I was able to hand it off to the insurance company's lawyers, who dealt with it. Had I had to pay for a lawyer I would not have gotten one half as good, and could have faced much more serious consequences. For me--and for many, many other people--the cost is worth it. For others, it's not. I know Ohio has provisions for being self-insured.

You aren't mandated to have insurance in any state other than liability insurance. Opt, if you wish, to have no coverage at all on your fancy, most expensive car that has lots of safety just have to show that you can cover someone else if you damage their stuff.


Let's not confuse liability insurance with collision and theft coverage. The damage you can do with your car is substantial. It's not unreasonable for the state to insist that you make some sort of arrangement to cover it as a prerequisite to driving a car.

The "reasonable" amount of parental attention from the state is often disputed.

What's "reasonable" is demanding that those who cause harm are held liable for that harm in the state's court system. The state doesn't need to mandate the purchase of insurance to require this. All the purchase of insurance does is shift the burden of restitution to a third party. What the state is actually doing by mandating the purchase of insurance is creating a captive market for the insurance industry (although the argument will be made that it's just innocently providing for the victims by ensuring that they are fully and immediately compensated for any harm they should experience).

That argument will be made, and it's a good argument when half the population is for practical purposes judgment-proof.

We've found mandatory insurance more humane than other arrangements like debtor's prison or requiring every adult to preemptively post bond for their own good behavior.

Can you link me to that particular study?

Or maybe it's just price discrimination.

Yep, that is what I was thinking (in addtion to costs). Safety features are now optional and only more well-to-do will buy them.

This brings to mind a presentation a few years back by a robotics group that wanted my facility to know about their sensor manufacturing capability. The company had developed that expertise because sensors were the most expensive portion of their robotics systems.

I am also thinking about the SRS light that was lit up on my Accord for its last few years, indicating that the airbag system had malfunctioned and would no longer deploy. I never gave any thought to repairing it.

Higher rates on safe cars mean fewer safe cars will be sold. If more safe cars were sold, there would be less of a need for insurance, so by discouraging buying safe cars, the insurance companies are keeping themselves in business.

Or, they are using the extra money to save for retirement for when safe cars put them out of business.

When I read the headline, I was expecting a Peltzman Effect thing. Darn!

+1, me too. From memory, that's the guy that showed seatbelts don't save lives as much as you might expect, because people consume the risk. But, if everybody has seatbelts so should you, for the obvious reason that there's more 'reckless drivers' around.

Insurance actuaries are the least likely of villains; they tend to be very tidy and precise. And their business is one of precision, too. If these safety devices reduced costs, rates would fall. It's a competitive business (except for the thieves who sell "guaranteed issue" life insurance to unsuspecting seniors; these should be hanged) and customers are very sensitive to rates.

This is the Apple Effect: any technological advance is immediately embraced and adopted, the old idea of cost/benefit ratios is dead. Today's consumers want the shiny and new and don't question the price. Insurance is old and dull - on that, they notice the cost.

If insurance companies are so precise and methodical, why would they offer a discount for having a car alarm - a device which does nothing to prevent crime and damage, because it can only go off after damage is done, and most of the time, it's a false alarm so we've all had to learn to ignore them. They're a nuisance which society pays the cost for with it's sanity and sleep, and insurance companies are incentivising it.

Possibly because drivers with alarms are more cautious than those without?

"New York State law requires insurers to give a discount to policyholders who have anti-theft
devices on their automobiles"
I mean, I am not going to hang my hat on this, but it was only a minute of googling.

Obama's CAFE standards are a bigger issue. Mild steel is being replaced with specialty high strength steel, aluminum, and even carbon fiber in order to make cars lighter and more efficient.

The downside is that they are far less repairable. Even thinner steel means more crash damage, as anyone who has been in an accident in a Honda knows well.

Also, smaller, more complicated turbocharged engines have been substituted for simpler, larger engines, and transmissions with more speeds have been added. Again, more costly to repair, with lower reliability to boot. And the real world mileage improvement is questionable.
"I and other scientists at the Massachusetts Institute of Technology estimate that the new standards will cost the economy on the whole — for the same reduction in gas use — at least six times more than a federal gas tax of roughly 45 cents per dollar of gasoline. That is because a gas tax provides immediate, direct incentives for drivers to reduce gasoline use, while the efficiency standards must squeeze the reduction out of new vehicles only. The new standards also encourage more driving, not less."

My sense is that cars are more reliable than they have ever been.

With the evolving AI driving systems being a disruptive threat to the auto insurance business by decreasing the huge loss of life and injury on our highways, it makes sense for them to try and destroy this evolving technology. They get a percentage of all the damage done by automobiles and anything that reduces the damage, reduces their ultimate size and profits.

I will bet they don't have any valid statistics to back up their increasing rates. This is political statistics where you assume the same, not lower, accident probabilities then claim higher costs per repair.

When you get the average annual car-insurance premium increased 14% since 2014 with insignificant market penetration of these advanced systems in the overall cars making the average, you know that it is just insurance companies games and rent seeking using all the regulations to prevent competition.

It's a competitive market. Without some massive collusion, some insurer will start lowering their prices to gain market share. However, the smart technologies are just a few years old. There's not that much evidence to go on at this time.

Just so. Rates have risen due to rising claims. It costs more to repair newer vehicles, as many have pointed out, and lawyer advertising has also increased the liability experience cost. Claims aren't paid by money that grows on trees.

This seems likely to be a temporary effect and over the long term prices will fall as more cars have them and the costs fall..
A) Most cars don't have these features yet, and they generally don't help you avoid being hit by somebody else. This will change as the prevalence of smart cars change.

B) The price of the equipment will either fall, or at the least be stable, but the capabilities will rise as better computing and software gets upgraded every 3 model years. The hardware infrastructure is essentially a one time hike in price.

C) The insurance company will charge based upon hard evidence. It's easy to see the cost of repairs in a given model almost immediately. It's harder to tell how much safer a given model will be and what that will save in the long run. Over the long run, if the equipment is truly safer, then the insurance prices will fall.


My software costs have gone up year on year. These sensors are fussy and prone to failure as well.

And the expertise required to repair these units to a factory calibrated working condition is very high and very expensive.

"My software costs have gone up year on year. "

In inflation adjusted terms per unit used, that's unlikely to be true for a major automobile manufacturer. They spend $1 million in year 1 for software that goes on 10K cars and then spend $2 million in year 2 for the same software that goes on 50K cars.

"These sensors are fussy and prone to failure as well. And the expertise required to repair these units to a factory calibrated working condition is very high and very expensive."

I've never heard of a shop repairing them. You just replace the units involved. If the units are significantly reducing collisions then the aggregate cost of replacing them is rather minor.

The software churn in rapidly advancing systems is usually pretty steep, even when lives and large liability settlements aren't at stake. Every time someone builds a better sensor...

Well I do that for a living for industrial customers including large car manufacturers. (Though I don't write code for embedded controllers, which would be what would handle on vehicle systems.) It's rare to completely discard software and start over. Most of the time you modify the existing code base. You don't re-write the code for a better sensor. Most of the time you would just modify the affected parameters and then run it through some kind of QA testing.

I'm also a programmer mainly for large mfg clients. The problem is for large companies writing 100K new lines or reusing 99,000 generally requires the same testing cycle on a new release -- I work in software packages running code first written in the 1980s and they can still easily cost tens of millions to implement, even before we talk about the millions in ongoing licensing fees. The onerous testing requirements can only be exacerbated by the issues of liability and the potential for killing people.

Also, these are bleeding-edge technologies and are changing quickly-- google AI self-driving software systems and you'll see what I mean, even the development platforms are new. The software investment will likely peak around the same time the number of cars driving themselves does (and probably tail off with diminishing returns after that point).

The assumption here is the added cost is a permanent state of affairs. But what makes up these costs? Software, cameras, computers. These things are still on Moore's law.

Software isn't.

Software isn't subject to Moore's Law, but it scales up at an extremely low marginal rate. An automobile manufacturer is going to be able to spread the costs of the software among a high unit count, and incrementally improve the software over time.

You don't repair the software after a collision.

"Well, here's your problem sir -- the collision knocked your impact mitigation algorithm right into the fuel efficiency maximization subroutine! And that's Japanese code, we don't even have the right keyboards in stock to fix that..."

My cynical view would be that gee-whiz features (seem to) help sell the car (in the dealer's estimation) and then those sensors are additional parts sales. Win-win.

The last time we bought a car the dealer tried to sell us an extended warranty "because there are so many sensors now, and they fail." I said "are you actually telling me Hondas are less reliable than they used to be?" At that point, trying to sell the warranty, he basically said "yes."

We got the same sales pitch change from Super Honda Reliability to All these New Sensors Are Crap when we transitioned from the vehicle salesman to the warranty salesman too. And the only issue we have had with the van has been a recurring but intermittent gremlin that keeps the system form properly switching between the backup camera, side camera and infotainment display.

If the sensor on my accord's radar, camera, etc. fail; it will still be as safe as the vehicle it replaced.

Assuming you don't back up blindly and wait for the beep to tell you if someone is there.

"Hondas are less reliable than they used to be?"


And no. Overall, they are more reliable, but the stuff that goes wrong can be expensive. That said, an extended warranty is not always a good idea.

Time for a belated "innovation tax" on all these unhelpful tech firms foisting their stultifying technologies? Let them pay through their digital noses. (When WILL sales taxes begin to be levied against online retailers? That's long overdue, too.)

This is a very interesting problem with ADAS systems.

Probably the most important ADAS system is Automatic Emergency Braking (which is sometimes combined with Forward Collision Warning). This feature will be mandatory on all new cars for the 2022 model year, and will save thousands of lives.

Despite the benefits, AEB is only a collision mitigation technology. In many cases, the vehicle will still be totaled after a crash.

The societal cost of car accidents of primarily in the lives lost (over 40,000 in the US last year). If these new technologies are more expensive to insure, policymakers could mandate increasing bodily injury coverage as part of auto insurance. This could help internalize the benefits of these safety features.

The BEA index of new car prices has increased; 2013=1.2%, 2014 = 1.1%, 2015 = 0.7%, and 2016 = 0.02%. This is an index of actual prices paid.

The CPI for new cars that is quality adjusted so it would exclude these new features has changed 2113 = 0.5%, 2014 = - 0..3%, 2015 = - 0.05%, and 2016 = - 0.5%.

Either way these new items are having very little impact on overall car prices. I'm sure this is largely due to only the more expensive models having these features.

Now that I have personal experience, I will not buy a car without the new technologies. A few tenths of a second before our highway head on crash 1/1/17 I saw the roof of the approaching car on my side of a double yellow line, just past the vertex of a hill. My foot never reached the brake, so we were both going 65+ at impact. With automatic braking, we might have slowed, and my wife may not have suffered near fatal injuries. No doubt the cars would still be totaled. One day we may have the technology to avoid these sorts of accidents in the future.

I'm very sorry to read about your accident.

It's not identical to your situation, but Tesla notes that with their radar system, they can bounce signals off the road beneath cars in front of a Tesla, and get information back about what's in front of the car in front of the Tesla. So they say that if a UFO lands on a road in front of another car in dense fog, the other car will run into the UFO, but the Tesla will stop see the UFO, and stop before hitting the car in front.

We lose too many good people in auto accidents. Autonomous vehicles can't come soon enough.

Unless the Tesla decides the UFO is probably just a road sign, and decapitates the driver.

Ensurnance rates,

I insure you,

Will be going up because of Trumpcare.

This post is a good example of failing to include in the measure of product quality the avoided costs of death or disability.

When you measure only property loss but exclude death or disability in your calculations you miss the whole point.

Sure, the property damage costs is more because it costs more to repair the bumper,


You are Dead if you don't have it.

Would you rather be Dead?

No wsj subscription, so I can click through. Do they break out the impact on comprehensive verses liability coverage? Is liability cheaper with the sensors but the comprehensive increase just swamps the savings or is this a Peltzman effect too?

"Enabling the safety tech are cameras, sensors, microprocessors and other hardware whose repair costs can be more than five times that of conventional parts."

Temporary effect. In 10 years, the cost of that hardware will be less than 10% of its current cost. Lidar used to be tens of thousands of dollars. Now it's a few hundred. In 10 years it will be a few tens of dollars.

P.S. Plus, the accident rate per mile traveled will also be down by 90 percent.

P.P.S. And that means air bag deployments will be down by >90 percent. The cost of an airbag deployment is typically $3000-5000.

Excellent data and points!

"P.P.S. And that means air bag deployments will be down by >90 percent. The cost of an airbag deployment is typically $3000-5000."

I would expect that drop in accidents due to the new technology to lower repair incidents enough that the higher cost of repairs is minor. Granted, the data doesn't show it yet.

I'm old enough to remember the bumpers on cars that were actually intended by the manufacturer to hit things -- signs, fences, other cars, unwary pedestrians -- on a regular basis. And if they took too much beating, so what, you just bolted another one on. Nowadays bumpers instantly shatter even in low-speed impacts that used to be laughed off as "fender benders," and naturally they cost a couple thousand to replace, even before you stuff them full of newfangled gizmos.

Some safety advances like airbags, ABS and self-driving are huge improvements, others like TPMS are mostly deadweight loss. These half-steps to self-driving probably come with too many costs and not enough advantages right now. Someday. though...

Did you know it is almost impossible to hit a professional driver even on purpose? Eventually self-driving cars will be that good.

Yeah, but there is no need to replace them you can just hit it with a sledgehammer until it looks roughly like a bumper again. Airbags have a cost benefit ratio below 1 and I suspect the 7th airbag has a cost benefit ratio below 0.

I agree self-driving cars could probably be programmed to assassinate professional drivers, but drone strikes may be more cost-effective.

As per my previous comment, I am willing to spend for the technology having had our lives saved by the air bags. My replacement SUV has a knee bag, which might be the 7th. My own worst injury from the head on was a seriously banged right knee.

Definitely agree, air bags save lives, as does ABS. ABS is probably somewhat more cost-effective because airbags sometimes injure people, but I would definitely pay for both even if I didn't have to.

The cost is going up because it's illegal not to replace a broken safety feature. So if the airbag deploys it costs $3000 to replace and that means any car less than $6000 will be junked, driving up insurance costs. The WSJ leaves out that these expensive repairs are mandatory or the car will not pass state inspection.

"The cost is going up because it’s illegal not to replace a broken safety feature. So if the airbag deploys it costs $3000 to replace and that means any car less than $6000 will be junked, driving up insurance costs. The WSJ leaves out that these expensive repairs are mandatory or the car will not pass state inspection."

That's not universally true. Perhaps it's true in your state. My wife bought a car in 2001 that was a repaired model without having the air bag replaced. It was just noted on the paperwork that the car didn't have an air bag. There are plenty of cars on the road that don't have air bags.

I actually wrote the rearview visibility standard for DOT many years ago, and the issue of balancing property-only damage with safety concerns was pretty thoroughly addressed in the regulatory analysis. It's interesting that it's one of the few times the Insurance Institute for Highway Safety, which ordinarily is a strong advocate for additional safety features on cars, was much more cautious about the addition of this technology, noting that it could drive up the cost of fender-benders substantially. There's also a lot of questions about the efficacy of these devices, which are really meant for parking assistance, in reducing accidents that result in injuries.

These things are often too costly, so got to have insurance. However, it’s not possible to get insurance on everything in life, so we got to be sensible and do things with proper approach. I do Forex trading which is as risky as it gets, but I have managed to control it which is all thanks to OctaFX and the wonderful facilities present counting for lowest possible spreads at 0.1 pips for all major pairs while there is cash back, low spreads, deposit bonus and much more!

In today’s society, the cars that people drive are becoming more technologically advanced. Scientists are making great strides to add all kinds of safety features to vehicles in order to reduce the amount of car accidents and other vehicular problems that occur each year. Examples of these features would be automatic emergency breaking systems and baking up cameras. Some cars now have Wi-Fi in them now. With all these new features to our vehicles comes the downside which would be the increase in insurance payments. That would be an opportunity cost when buying a car today, you not having some of these features would give you a less expensive insurance payment, but you may be more likely to get in car accident. On the other hand having some of these features on you vehicle would possibly decrease car accidents, but you may have a higher insurance payment.
When it comes to the higher insurance payments for cars that contain the new safety technology, the higher rate is mainly due to the cost to repair these features. It doesn’t help that some of the sensors are located on spots of the vehicle that are most likely to be damaged when they are involved in an accident like the bumper and rear view mirrors. The hardware used to make the safety features are not cheap. The higher rates would help repair the expensive technology and also benefit the insurance company in trying to make a profit. Choosing a new vehicle is always a difficult decision to make and these new features don’t make the decisions any easier.

If even one airbag deploys, the car, a hundred yards off the lot, is totaled regardless of body or mechanical damage. Not worth the cost of repair.

Not to mention, pinching of wiring, fracturing of connectors, poor repairs, etc., mean lots of diagnostic costs after corrosion sets in as most auto techs are parts swappers and don't look for voltage drop across the wiring. I saw on Scannerdanner youtube (professional auto diagnostician) where the Miata just died. Alternator wouldn't charge, dash dead. Traced all the way to a short in a hack O2 sensor repair years earlier where the rubber plug wasn't put back in place so the power wires shorted on a sharp edge.

Someday this might settle out, "mechanics" need all the mechanical skills, electrical skills, electronics skills and increasingly network tech skills. Right now, if you have anything in the electronic area, best to shoot the car and get a new one. Otherwise, absent finding one of the few good, and expensive, troubleshooters, you car is just a hole in the driveway you throw money into.

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