Progressive (NYSE: PGR) wants to become the first company to charge older drivers higher rates for auto insurance. In an unprecedented move, Progressive has asked Maine’s Bureau of Insurance for permission to raise premiums for those over 65.
A 65-year old driver would be charged six percent more than a 64-year old under the proposal, The Portland Press-Herald reported. Progressive had initially wanted to charge a higher rate as drivers got older but now wants to raise rates at 65, but the Bureau turned down the request on June 10. The Bureau said no because of a state law that bans insurers from basing premiums on age in Maine.
The measure would only affect new policies and not existing customers, The Press-Herald reported.
If it were approved, the increase would be the first in the country that charges older drivers more based on age. Age-based insurance rates are nothing new many companies charge younger driver’s more. Yet insurers have usually shied away from charging older drivers more because of the political backlash.
Why Does Progressive want to Raise Premiums for seniors?
There are several reasons why Progressive would want to raise rates for seniors including:
- People over 70 are more likely to die in a crash because of their frailty, the Insurance Information Institute noted. Fatalities in accidents are increasing and raising costs for insurers. Traffic fatalities nationwide increased by 7.7% in 2015 and the rate of increase has been higher in some states including Georgia where it rose by 25%.
- There are simply more older drivers on the road as the Baby Boom generation turns 65. There were 74.9 million Baby Boomers in the United States in 2015; Baby Boomers are those aged 51-69. Those numbers will increase as the Boomers age.
- Statistics indicate that Boomers are more likely to drive than other generations. Around 76.7% of people between 20 and 2014 had a driver’s license in 2014; while 92.1% of those between 45 and 69 had one, data compiled by the University of Michigan Transportation Research Institute, indicates. More time on the road means more risk of accidents. It also means Progressive makes less money from younger drivers.
- Progressive might want to use the higher premiums to cover the cost of claims from younger drivers. 16 to 20 year olds had an accident rate of 11.14% in 2014, while 65 to 74 year olds had a rate of 2.67%.
- One reason why Progressive might want to pass the costs onto older drivers is Medicare. Since most drivers over 65 presumably have Medicare, Uncle Sam covers their medical costs. Insurers have to pay for injuries to younger drivers; via bodily injury liability claims, which can be costly. The average bodily injury liability claim cost $16,600 in 2016, CNBC reported.
- Progressive is making less money its net income fell by $127 million in the second quarter of 2016; and by $267 million between June 2015, and June 2016.
Is it a Test for Nationwide Rate Increases for Seniors?
Progressive’s move in Maine looks like a test run to see what the popular and political reaction to higher insurance rates for seniors will be. The company may have chosen Maine for the move because its population is older, which would give the insurer clear picture of popular reaction.
Progressive itself is taking a risk here; just one day after newspaper stories about the rate increase appeared legislation, banning it was introduced in Maine’s State Legislature. Rep. Henry Dick (D-Waterville and Oakland) introduced a proposal to amend the Maine Insurance Code to bar the increase, The Portland Press-Herald reported.
One has to wonder if other companies will imitate Progressive’s move and if it will occur in other states. It is likely to happen if the population keeps aging and fewer younger people drive.