Insurance premiums are calculated by the average cost of liabilities. If I were to create a car that costs a few trillions, would it force all insurances to rise their premiums in case anyone hits me?
I just talked with my insurance agent about this a month ago. They said that they don’t cover those types of vehicles, but will enroll you in another company’s insurance so that you’re covered and only have to pay 1 bill. For example, they don’t cover that truck from Tesla because the repair costs are too high, but will repackage (I think) Liberty Mutual for that vehicle and your other vehicles, house, whatever stay with them, then you just pay one bill and they’ll pay Liberty. He said that they don’t charge for doing that and you still get credit for bundling and you’re covered by your umbrella policy if you have one.
That sounds like a sus thing libertarians don’t believe in, a.k.a free money
Pretty much, for ultra expensive cars, you get special insurers to cover them. Hagerty comes to mind and is one who specializes in autos with collectible cars especially.
Some car insurance companies can refuse certain models or anything that surpasses a dollar value amount.
But if someone else causes damage, isnt their insurance liable?
Yes, so whoever is at fault their liability pays out. The issue is too many people don’t know enough about liability limits and their agent offices (if they have them) don’t educate them, so they buy state minimum for expensive cars!
If I drive a little Civic with IL state minimum liability of “$25k/50k/25k” that’s only $25k per person or a max of $50k max per accident, those are bodily injury limits. $25k for all property damage, which could be multiple cars and/or physical property.
Now, a note I’d like to add: you’ll also have uninsured motorist/underinsured motorist coverages, but those can’t be higher than your own liability limits, so if you drive a $100k car, you should be VERY worried about everyone else with state minimum coverage which only gives you 25k towards your property (car) repairs (FL I believe is sadly only $15k). YOU’LL WANT ADEQUATE COVERAGE
If you drive a $1m car, you’ll likely have a $250k/$500k/1m policy, which covers obviously higher bodily injury limits, but also your car’s value up to $1m. The reason I don’t list higher BI limits is usually at that point, people also have Umbrella liability policies which gives them $1-10m additional liability coverages for all their policies under that “umbrella”. I do this for our stuff because we have “scary dogs” and if they bit an intruder I don’t need them suing me for injuries, SMH.
This is why I ALWAYS recommend reviewing your auto policies and try matching closely to your own values, to be properly insured. I would also suggest going with higher than 100k bodily injury liability limits. We all know how expensive ER visits can be (US), and if your policy hits the “limit”, you’re liable for everything over that. My dad’s car accident ER bill alone was over $250k. Not to mention ICU docs out of network, physical therapy, etc. It was a ~45mph t-bone collision. Their underinsured policy kicked in saving my parents well over $200k combined.
I hope this helps anyone reading it!
Kinda illustrates the stupidity of car dependency and income inequality.
Fact is, driving is fucking dangerous and nobody can drive safely enough at all times to guarantee they’ll never be at fault for an accident. Why are we risking financial ruin every time we drive to the grocery store?
Well, you’re not risking financial ruin, you should educate yourself enough to understand what you’re buying so that insurance can make you “whole” again after an accident. Unfortunately the real world doesn’t work that way, so you sort of over prepare I guess to compensate for those less informed.
The costs of increasing your coverages is pretty negligible, honestly.
This is why statistics has the concept of outliers.
Alternative.
A new luxury car costs 1 billion hits the road. 1000 super rich people buy them so they are no longer an outlier (still same amount of liability added).
We can adjust the numbers lower, adding a million $1000000 cars…
I think it’s more likely that insurance companies just wouldn’t insure them.
Usually, there is a limit on the amount of damage that is covered by the mandatory liability insurance (in Germany, at least 1.22 million € for property damage).
Maybe this is different in different countries, but I don’t think insurance has to agree to cover a given vehicle for a specific person. So basically, if you try to insure it, they could just say no.
didn’t mean your car, but third party insurance,which is mandatory, the one that pays for damages you cause to other people
Third party insurance often is only a minimum that you have to fulfill. E.g. IN USA has a law stating that you must have $25k liability insurance as a driver. If you cause damages beyond that then you privately are liable again. So in this case it also wouldn’t make everybody’s insurance go up.
If you were the one unlucky dude who caused a wreck with the $1 trillion car, then you would just privately be f**ked.
On a side note though: A lot of these kinds of court cases end up going for settlements much lower than the actual damages caused, because you can only recover the amount somebody actually has in court. If the damages are $1000 and the other person only has $10 to their name, you will only get $10 from them (and you will still have to pay your own layer costs from that as well). So driving this expensive car is really only dangerous to the owner who will lose a bunch of money if it gets damaged.
Posted already, but had another thought… This is exactly what’s happening with health insurance costs with the introduction of GLP medications.
you mean costs go down because less obesity, or cost goes up because more medications
Good point. I was referring to the short term costs of the medications, but you may have a point that lifetime costs could go down as obesity related illnesses drop.
advantage of comprehensive healthcare, it’s genuinely cost effective to pay more for a healthier public
For this analysis to make sense, we need to deconstruct “auto insurance” into its various parts, because this will matter. Note that some jurisdictions have no insurance requirements (eg New Hampshire) and others have a thing that splits bodily injury across all parties, meaning that the liability component is harder to apportion. The point is that the analysis will vary slightly based on where you are.
Typical auto insurance can include: third-party liability (the component mandated by most US States), collision, comprehensive, medical, and uninsured/underinsured motorist. These are all insurances that you buy, but they might not necessarily pay out to you.
Third-party liability covers damage or injuries that you cause to some other party, payable to that other party on your behalf. Crashing into a lamp post, a pedestrian, or an occupied car all will be paid from the third-party liability coverage limits. A state like California mandates a minimum coverage, but it’s not been updated for inflation and stands at a paltry $30,000 per person injured and $15,000 for damaged property.
Collision insurance covers your automobile as it is being driven. So if you wrap your car around a telephone pole, this insurance pays to replace your car for you. Generally, this insurance follows the car, so if you lend the car to a friend and they crash it, the policy will still pay out so you can replace your wrecked car.
Comprehensive insurance is similar to collision, in that it covers your car. But notably, it covers the car when not in operation. So if a tree falls on the parked car, or someone keys your car, then comprehensive insurance will pay out. A rule of thumb is that collision applies if someone is in the driver’s seat, and if not, then comprehensive would apply. Note that some states (eg California) explicitly exclude collision/comprehensive coverage for instances of hit-and-run where the assailant remains unidentified; this is a public policy choice, so that insurance prices don’t skyrocket if anyone can claim that their mailbox-sized dent was due to a hit-and-run.
Medical insurance covers you and your passengers in the event of a collision for any reason. If you crash into a tree and it injures a passenger, your medical insurance pays out for their injuries. If a big rig pushes your car off the highway, then both your medical or their third-party liability can pay for your injuries. The oddity is that if you have health insurance, then auto medical insurance only pays for your deductible. That is, health insurance pays first, and anything that still remains can be paid by someone else’s third-party liability (if available) or your own auto medical insurance. For this reason, some people omit auto medical if they already have health insurance, and can manage their deductible.
Finally, UM/UIM is a policy that, oddly, covers other people but pays to you. Imagine being struck as a pedestrian by a teenager riding a e-moto without a license or insurance. If you were struck by a motorist, their third-party insurance would have paid out. But here is an underage motorcyclist that doesn’t have any insurance at all, despite a legal requirement to have insurance. To prevent you from being SOL, your UM/UIM stands in for their lack of third-party insurance, meaning it will pay you for all your injuries and damages.
With all that background, let’s return to the titular question. Supposing a ludicrously expensive car is now on the road, and the owner has purchased every policy above for themselves, there really shouldn’t be an impact to other people’s insurance rates.
Third-party liability is based on one’s propensity to incur damage or injury to other people. The motorist driving in a sea of econoboxes is not somehow more disposed to causing a collision if they’re instead driving in a sea of expensive cars. The amount of damage might go up, but third-party liability is always written with a max coverage limit anyway.
For collision and comprehensive, these are based on the value of your car, not other people’s. So it really shouldn’t go up, at least directly. Of course, there are second-order effects, such as if billion-dollar cars cause mechanics to move away from servicing normie cars and towards servicing only these luxury cars, causing reduce supply of mechanics and thus inflation of the cost to repair all cars. That would indeed increase the payout for collision and comprehensive insurance, which would increase everyone’s rates.
Medical insurance is also fairly unchanged, because it either covers your bodily injuries (which could be high but not infinity) or is capped by your health insruance’s deductible (which post-ACA is indeed limited). A billion-dollar car causes injury under the same physics as a normally-priced Honda Civic. It’s not like the billion-dollar car weighs 30,000 kg, right?
And finally, UM/UIM is about uninsured motorists or motorists with not enough insurance. Rich people have deep pockets to cover any injuries or damages which their third-party insurance doesn’t cover. So all else equal, ludicrously expensive cars on the road doesn’t move the needle for other people here.
Overall, auto insurance tends to internalize the individual costs of automobile risks, so that there is no direct spillover onto other parties. But even while the auto insurance market is efficient, the market of new and used car parts is not. The market of healthcare in the USA is not. The market of feasible alternatives to driving is not. While a billion-dollar car doesn’t disrupt this careful balance within auto insurance, so many other things will.
It took me a while to get a sense for what you meant, but I think the answer is yes? If insurance companies saw there was a new risk associated with driving, a new .1% chance you might get in an accident requiring the insurance company to pay out $10 trillion, I think you would see insurance companies raise premiums to offset the new $100 billion liability, and I think it would not only be paid by the owners of the new wildly expensive car, since you have to offset the chance that I am at fault for its destruction as well. I do however wonder how you could construct a $1 trillion car and have it be completely totaled by a $5000 car in an accident – wouldn’t at least a few billion go to reinforcing the chassis?
Maybachs exist.
I suppose it depends on where you live, but my insurance covers property damage up to $X and medical bills up to $X. Anything beyond those amounts would simply have to come out of my pocket, so there’s no reason for my insurance company to charge more for your car.
The US alone has 1.7 trillion dollars in car debt that’s a lot of cars so I don’t think a limited nber of ultra high end cars are going to sway premiums that much
I picked an intentional huge cost. That car being totaled would seriously increase that car debt
