Quick, now: Will you send your children to STEM or to FIRE? It sounds like a question that might be asked as part of the “Hunger Games” but it’s far more important than that. The media continually tells us that not enough young Americans are getting degrees in the so-called STEM fields of science, technology, engineering and mathematics. Instead, they’re choosing careers in FIRE — finance, insurance, and real estate. Why is this happening?
The cynic in me has all sorts of unpleasant answers to that question, mostly having to do with the fact that you never see a Wall Street bank outsource its trading operations to Asia, but here’s another good, solid answer to the question: One of the major insurance agencies just announced that they were going to raise premiums on the Tesla Model S about thirty percent. They are doing this because they aren’t making enough money on Tesla policies.
Never mind the fact that American insurance companies, as a whole, earned almost half a trillion dollars in net profit over the past decade. There’s always room for a couple more dollars in the hopper. So the premiums on Teslas will rise by a third.
Consider, if you will, how much engineering effort, how much financial risk, and how much sheer willpower went into the creation of the Tesla Model S. Contrast that with the relatively prosaic and uninteresting task of insuring the Tesla Model S. Now consider that nobody is under any legal obligation whatsoever to purchase a new Tesla, but the moment you buy one anyway you will be under a legal obligation to purchase insurance for it.
Doesn’t seem fair, does it? The STEM guys bust their humps to create a technological masterpiece and they have to shave the cost down to the last penny just to survive in the marketplace. Meanwhile, the FIRE crowd gets to shoot fish in a barrel courtesy of mandatory-insurance laws plus they can raise the premiums any time they feel like it. One side does all the work and takes all the risk, while the other side has a government-guaranteed customer base and the ability to raise prices whenever they like. And you wonder why the Millennials decided to eschew burning the midnight engineering oil in favor of partying their way through a middling business degree before going to work on Wall Street or in the insurance business. Turns out it’s because they’re smart.
Those of us who are a bit older than the Millennials can recall that this isn’t the first time the auto insurance industry has reached down from its profitable perch and put the screws to a particular type of automobile. Consider the following: Thirty years ago, the market was chock-full of two-seater sporting cars. Some of them were pretty tame, like the Escort EXP, and some were absolute corkers, like the 300ZX Turbo. It didn’t matter. The insurance companies decided that two-seat cars should be charged higher premiums–and poof, they just disappeared.
Take a look at the list of the cheapest and most expensive vehicles to insure. The insurance companies love dog-slow tippy-toe misery-mobiles. I guess maybe rollover accidents aren’t such a big deal after all, because every single vehicle on the low-cost list has a hip point well above that of a Honda Accord.
The list of the most expensive-to-insure vehicles, on the other hand, reads like a dream garage, chock-full of desirable stuff like the last-generation Viper, the Nismo GT-R, and the Audi RS7. But it’s the rankings in-between that truly rankle. Did you know that the Lexus IS350 is about ten percent more expensive to insure than the ES350? Why would that be, other than the fact that the IS350 is a delight to drive compared to its staid front-wheel-drive showroom compatriot? The Mercedes C400 costs more to insure than the E400. Why? Again, other than being more fun to drive, what sin has the smaller, cheaper sedan committed?
It’s not just cars. The insurance companies have all but killed the sportbike market. It’s prohibitively expensive to insure anything but an “adventure bike.” I decided not to insure my ZX-14R for collision because the tab for doing so was one-third of the price of the motorcycle per year. Mind you, I have never had a motorcycle insurance claim of any kind. It’s literally cheaper to put a motorcycle on a credit card and pay that interest rate than it is to finance a bike with a reputable bank and meet their standards for collision and comprehensive insurance. Surely that’s an indicator of a broken market.
None of this would truly matter if we had a genuine free market when it came to auto insurance–but we don’t. You’re required to purchase it, by the state and by your financial institution. The rates are difficult to compare and subject to change with little notice after you start your policy. Virtually anything you do, from getting a ticket to getting divorced, will raise your rates. Some insurance agencies actually pay the quick-lube oil-change places to send them your odometer readings so they can raise your rates for “excessive driving.” It happened to my wife; they looked at the monthly mileage she put on her Tahoe during the winter and extrapolated that out to the whole year. Oddly enough, they didn’t extend the equal and opposite favor to her regarding the Corvette that doesn’t leave the garage in January. Strange how that works.
Against the above list of sins–killing the two-seater market, forcing young people into high-riding, rollover-prone mommy-wagons, and making motorcycle ownership just slightly less expensive than owning a Gulfstream–the defenders of the auto-insurance game have nothing to say other than the fact that auto underwriting is occasionally unprofitable for the insurance companies. Mind you, it’s not so unprofitable that anybody is quitting the business. The past four decades have seen the auto industry lose dozens of independent manufacturers as diverse as AMC and Lamborghini in a vicious downward spiral of rising costs and increasing regulations. Have you seen any insurance companies go out of business during that time? I rest my case.
What’s the fix for this state of affairs? I can’t tell you. I don’t have the education to know. I didn’t major in STEM or FIRE. (I majored in SCREW–Sleeping, Cycling, Racing, English, and Working a second job while I was in school.) But given that we live in an era where a lot of attention is being paid to how “fair” and “equal” everything is, at some point there is going to have to be a national conversation about the fact that our regulations are written to benefit the FIRE folks at the expense of the STEM people. It shouldn’t be less risky to insure a car than it is to design, engineer, build, market, distribute, and warranty it.