With Crashes and Theft in Reverse, Car Insurance Premiums on Cruise Control

Automobile thefts and accidents both dropped by at least a quarter from 2008 to 2013, but the price of auto insurance fell less than 10 percent.

Dreamstime

Traffic accidents and automobile thefts have declined sharply in recent years and the insurance companies’ profits have risen, but automobile insurance rates have not fallen accordingly and in some cases have even gone up, Haaretz has found.

In 1998, the number of traffic accidents climbed to 81,000 and more than 40,000 automobiles were stolen. This combination pushed up auto insurance rates. But in the following years, both automobile accidents and thefts declined. The changes came following the establishment of Etgar, an Israel Police unit to fight auto theft, and the construction of the separation barrier, which made it impossible to take stolen automobiles to scrapyards in the West Bank. Also, road improvements led to a significant reduction in automobile accidents. But auto insurance premiums remained unchanged.

“A few months ago I was paying my wife’s car insurance,” a senior police officer who had served in the Etgar unit told Haaretz. “I know what the police do. I know what we did to reduce car theft. I know what the unit’s combatants do at night. I can’t understand how this has not affected the insurance rate."

Pyrrhic police work

Etgar was set up in 1998, after two years in which almost 90,000 automobiles were stolen. The unit closed down in 2002 but reopened in 2004, when the number of automobile thefts rose again to more than 34,000. Today, Etgar is part of Lahav 433, the police force’s crime-fighting organization, and consists of 150 officers who previously dealt with organized crime.

The unit focuses on catching stolen automobile traders rather than thieves, because they are the ones who create demand, an officer said. In 2013, presumably due to Etgar’s work, only 17,551 automobiles were stolen.

The police said in a statement, “The police’s resolute fight, spearheaded by the Etgar unit, against auto theft has led to a consistent significant decline in car thefts.”

The insurance companies finance 40 percent of Etgar’s activity — some 7 million shekels a year — as stipulated by law. Police officers say they have mounted complicated operations and planted undercover men in automobile traders’ gangs both in the West Bank and in Israel proper. In June last year, for example, 23 suspects were arrested in Hebron. But despite many successful operations, auto insurance rates have not gone down.

Senior police officers say the public has not seen a benefit from their hard work on behalf of the insurance companies. “It’s unthinkable that insurance in 2008 was almost the same as it is today,” a senior officer in Lahav 433 said.

“Anyone with a head on his shoulders can see that tens of thousands fewer car thefts and tens of thousands fewer car wrecks should have reduced the insurance rates by hundreds of shekels per person,” he said.

The auto insurance market in Israel is worth some 5-to-6 billion shekels a year. When insurance companies calculate comprehensive insurance premiums, they factor in 10 percent for theft and 90 percent for accidents, which are the bulk of their payout costs.

“Most of the insurance companies’ payout costs are for traffic accidents,” a senior insurance official said. “The value of an hour’s garage work in calculating the premium is much more significant than the reduction of car thefts.”

He said it was hard to put a price on people’s sense of safety from the reduction in auto theft.

Stuck in high gear

Haaretz has obtained figures showing that the decline in auto theft had no impact on comprehensive insurance premiums. From 2008 to 2013, the premiums went down by less than 10 percent — from 3,785 to 3,416 shekels a year. In contrast, the number of automobile thefts fell by 28.7 percent and the number of traffic accidents fell by 25 percent.

In 2012-2013, the average comprehensive insurance premium rose by about 10 percent, despite a continued decline in theft and accidents.

“The insurance companies don’t look at the reduced risks due to the recent years’ changes,” a woman working in car insurance said. “For them, the consideration is where they are most vulnerable. For example, Skoda is extremely in demand in the stolen car market. A Be’er Sheva resident who tries to ensure a Skoda may find that it’s impossible, and if he can, he will be charged hundreds or thousands of additional shekels for protecting it.”

“The company doesn’t care that five years ago 200 Skodas were stolen a month and today only 20 are. As far as the company is concerned, most of the stolen cars are Skoda, so the car’s insurance will be higher,” she said.

In the past decade, traffic accidents have been reduced due to improved roads and safer automobiles. The number of accidents was reduced from 81,441 in 2008 to 61,354 in 2013. Here too, the profits remained with the insurance companies, their reports show.

If the insurance companies had adjusted their rates to the changes in these figures, they would have reduced premiums in 2012-2013 by 5.8 percent, according to Haaretz’s calculation. Instead, the premiums increased by 10 percent in those years.

Comprehensive insurance premiums between 2008 and 2013 should have been reduced by 25 percent, instead of almost 10 percent, on the basis of the reduction in auto theft and accidents. The fewer thefts and accidents were reflected in the insurance companies’ profits.

A senior insurance official has another explanation for the figures. “In recent years, we’ve experienced a rise in auto repair costs,” he said. “The cost of repairing accident damages are constantly rising. The insurance companies aren’t really making a profit in this area.”