By on March 4, 2010

If news about recalls can’t bring Toyota sales in China to their knees, maybe insurance premiums will.

The Nikkei [sub] reports from China that insurance premiums on Toyotas have recently risen by as much as 40 percent. Insurance premiums are going up everywhere in China. No wonder, considering that more than 100,000 die a year on China’s roads, and about half a million are wounded. But Toyota premiums are rising particularly sharply.

Now, read what those premiums are, and cry. The annual premium on a standard 90,000 yuan ($13177) damage policy for a Toyota has risen to  2,000 yuan ($292). Per year.

In related news, Chinese drivers must have followed the Senate hearings closely. Peoples’ Daily reports that Chinese owners of recalled RAV4 feel discriminated. “In the US, the company provides door-to-door service to consumers involved in the recall,” tells the paper to the astonished masses. When drivers bring in recalled vehicles themselves, “the company offers transportation reimbursements and a loaner car of the same model.” No such luck in China. “On some online forums, many RAV4 owners are discussing the possibility of filing a class action suit in China against Toyota,” says Peoples’ Daily. Again, they must have picked-up that term from the press. There is no such thing as a class action suit in China. According to the New York Times, “the ruling Communist Party discourages the filing of lawsuits with multiple plaintiffs, saying that such lawsuits could disrupt social stability.”

The classical class action suit remains a predominantly American phenomenon. Some countries allow groups (comprised of individuals, or certain organizations) to bring suit. Most countries don’t allow class action or mass action suits.

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15 Comments on “State Farm: Don’t Get Any Ideas...”


  • avatar
    Robstar

    Isn’t this rather low? Was this sarcasm? I’m lost…

    I pay more than this for my 5 year old gsx-r 600 which I can only ride 7-8 months out of the year. On top of that I’m in my mid 30’s & married…

  • avatar
    mdensch

    I suspect that those insurance rates in China reflect a society that is far less litigious than we are.

    • 0 avatar
      segfault

      And has a far greater indifference to human life. Remember all of the poisoned food they’ve shipped here.

    • 0 avatar
      Robert.Walter

      @segfault: +1 (and poison toothpaste to S. America, and poison childrens “colour beads” to (I forget), and self-embrittling valve-stems to the US … and the beat goes on.)

    • 0 avatar
      psarhjinian

      And has a far greater indifference to human life.

      That’s not a Chinese thing as much as a problem of abstraction and/or abdication of responsibility. Most commercial entities would do the same if they were in the same situation, and, in recent times, many have.

      When you’re so far away from the individual lives you affect, why should you care? Especially when you face no realistic penalty?

  • avatar
    Mr Carpenter

    We’re also looking at the insurance costs from our earning perspective. Try paying those insurance rates on 1/10th of our wages and then see how “cheap” it looks….

    • 0 avatar
      twotone

      Yes, but people in China making 1/10 what we do can not afford cars. Those who can, are as well off (or better) than us. I saw more Mercedes, BMWs, Audis, RRs and Maybachs in Hangzhou than anywhere in the US.

      Twotone

  • avatar
    L'avventura

    Insurance is a competitive market, consumers will move to cheaper alternatives. Statistically speaking any of the recall related issues would not correlate with an increased amount of claims. If State Farm is alone with this, then its poor business making or they have an ulterior motive.

    I’ve been to China numerous times, the variables that contribute to accident/injury/death on Chinese roads are abundant and have more to do with the driving environment then anything else.

    Also, I’ve recently become to wonder why automotive companies don’t run their own optional car insurance for their own cars. For instance, Toyota could offer insurance for their own cars, it would be serviced through their dealers that could be offered at a lower price then places like State Farm. The dealers would still need to be paid, but parts could be close to at cost, they could completely avoid advertising costs, and dealers will be happy for the extra revenue. The cost of covering injury or damage to other cars won’t be any less expensive, but it would also be an incentive for the company to make safer cars, since the car maker would be financially responsible for any injury within their cars.

    • 0 avatar
      psarhjinian

      Insurance is a competitive market, consumers will move to cheaper alternatives

      Up to a point. There are mitigating factors:
      1. It’s a cartel, not a market and in many jurisdictions it’s a government-mandated and supported cartel.
      2. Profits are highly depending on the strategic investments insurers make (what, you didn’t think they weren’t investing your premiums on the market?).
      3. Because of #2 above, when their investments suffer and they become more conservative with risk, the profit/loss threshold changes. They’ll raise rates (en masse, see #1 above) or outright cancel coverage for people who are negatively or potentially negatively profitable.

      Toyota could offer insurance for their own cars, it would be serviced through their dealers that could be offered at a lower price then places like State Farm

      One reason is that it’s potentially anti-competitive.

      Mostly it’s because insurance is a hard business to enter: you need to have huge volumes to make a solid profit, and obscene volume to provide rates that undercut your competition.

      This is why only obscenely profitable entities (eg, like banks) ever enter into the market: no one else has the financial padding to make it work. A manufacturer’s margins are too thin and it’s costs too high to make the risk work.

    • 0 avatar
      HerrKaLeun

      VW and Opel used to that in Germany (not sure if they still do). In reality it was an “Allianz”(the then largest insurer) insurance under the VVD or Opel name. Exact same rates (which was bad, since Allianz was the most expensive insurance).

      so then the car sales man not only windles you into extended warranty, financing, gap-insurance, but also in your regular insurance that you will stick to for the years to come? Not a good idea…

      If the dealer was cut out and the car OEM sells directly, how is that then different from me going to Geico int he first place (and likely be cheaper)

    • 0 avatar

      Volkswagen is still doing it and making tons of money with it

  • avatar
    Robert.Walter

    The issue is not whether premiums (aka rates or prices) in China are a fraction of those in the US, but rather how they compare within that market.

    As said above it is a competitive market segment, and has to be considered from that viewpoint. If premiums on Toyotas are rising across the board, then this more reflects an issue with the brand, and less with any one, or few, insurers.

    One of (IIRC) Psar’s previous arguments for Toyota was Total Cost of Ownership … assuming that after price increases hit, that the rates (aka prices) for non-Toyota vehicles don’t rise equally, and that the pre-increase Toyota rates were less, or equal with those on non-TMC products, then the only question is whether TMC is still competitive after the rate increases.

    If the cost to insure a TMC product became more expensive than that of non-TMC product, then TMC will have lost a competitive advantage and this Will cause some customers to buy non-Toyota product (and TMC to have to incentivise those potential customers to keep them from defecting.)

    If the relative cost to insure is still better than the competition, then TMC will be OK.

    • 0 avatar
      psarhjinian

      Something else to keep in mind is that, in addition to being risk-averse, insurers are very opportunistic. Toyota owners are effectively captive, and the increase in premiums is effectively free cash at the expense of another firm’s reputation.

      It’s a perfect storm of opportunity, from a marketing perspective.

    • 0 avatar
      Steven02

      psarhjinian,
      Toyota owners aren’t captive. Cars can be traded or sold and insurance companies can be changed. If the owner doesn’t get rid of the vehicle or change companies, it is his own fault… if the difference is large enough to make a difference to that customer.

    • 0 avatar
      psarhjinian

      Toyota owners aren’t captive. Cars can be traded or sold…

      Go and try to trade in your car for an equivalent model, same age/wear or newer. You are not going to come out ahead in financial terms. The depreciation alone will be a crushing hit; taxes and seller’s margins only add to the pain.

      In the end, you’re several thousand dollars in the hole. Most people cannot afford to take such a hit. Most people are not wealthy, many more than was previously the case.

      …insurance companies can be changed…

      Insurance companies often move in lockstep. They all have similar rate tables, and it’s only a matter of risk/benefit that determines how much “pain” they want to endure and most don’t want to endure much at all these days.

      An average driver might save a few hundred dollars a year. Maybe. They’ll also lose loyalty discounts and risk cancellation penalties, and their new insurer may opt for the same coverage increase.


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