I am curious to the mechanics of how the accounting situation arises that an insurer would benefit from taking on more liability for less revenue.

The entire business is heavily regulated and based on accurately accounting and pricing risk. It seems suspect that a regulator would allow such an obviously mispriced insurance product.

The explanation I saw was that people who buy comprehensive insurance are by and large regarded as lower risk than 3rd party only buyers & sometimes that weighting can tip the balance to make comprehensive cheaper than 3rd party, if the insurer thinks you’re otherwise a low risk buyer.

All insurers have to go on to gauge your risk are the signals available to them & the type of insurance you’re buying is a signal.

Whether this is still true in the modern world I don’t know - I probably saw this advice ten years or so ago on a well regarded money saving site.

Interesting, I had not thought of that. I have been purchasing auto insurance for over 10 years, and I get prices every couple years. I always buy extremely high liability only insurance because I can easily afford to replace my car if anything should happen to it. I have always found liability only insurance to be much cheaper than comprehensive and collision and liability insurance.

It would greatly surprise me if buying comprehensive insurance itself served that good of a signal to offset comprehensive/collision insurance for say, a $20k to $40k car.

Yes, on the other hand if you own a $5k car then the insurer’s liability is much smaller & there are plenty of older cars on the road driven by older, safer drivers that fit into that category.

This was regarded as a weird corner case even then & was mostly just used as an example of why you should try tweaking various features of the insurance you were after, because the price could sometimes change in ways that might seem counter-intuitive.

That ... still makes no sense. "Discounting insurance for revealed [lower] risk class" doesn't work if the insured can easily fake membership in the lower risk class, which is trivial here -- just ask for comprehensive!

What I think you might be confusing this with, is that one piece of the insurance is cheaper if you bundle it with others. That is, liability-only might be $50, but if you if you get liability + collision, it's $80, which breaks down into $40 for liability and $40 for collision. The insurer is taking more liability -- but also more revenue, so no funny business.

The "high-risk poor" can't "cheat" here because they can't afford the extra $30 to begin with, and "being willing/able to spend $30 just to be safe" is an actionable signal of being low risk.

But you still shouldn't have a scenario where you get strictly greater coverage for strictly less money.

There's also a scenario where only people who don't look at prices buy liability-only, which signals poor decision making or carelessness and justifies higher cost to regulators.

The phrase “not looking at prices” generally means willing to buy the more expensive products or services. If you buy liability only, it means you are looking at prices and coverage.

This makes more sense to me.

They are not taking on more liability.

The insurance company now has no responsibility to repair the insured vehicle so they have less responsibility.

I suspect Collision insurance is very profitable compared to liability.

pja made the claim that in some instances, collision/comprehensive + liability can be cheaper than just liability alone.

I expressed surprise that collision/comprehensive + liability can be cheaper than just liability alone, since, on the face of it, the insurance company seems exposed to more losses due to possibly having to pay the insured for their car damages.

In my comment, I wrote liability referring to the insurer’s liability for paying to fix/replace the insurer’s car, not liability as in auto liability insurance where the insurance company pays others for damage you cause to them.

Possibly willing to buy collision is a proxy for a generally prudent driver.

Also, skipping collision happens most often when driving a really cheap car, which can be a marker for a bad driver.

Actuaries actually have numbers for this things, but I am just speculating.

> Possibly willing to buy collision is a proxy for a generally prudent driver.

It's a proxy for not being able to afford to fix or replace your car at the drop of a hat.

>Also, skipping collision happens most often when driving a really cheap car, which can be a marker for a bad driver.

Once again, just a proxy for money.