Posted 6:29 AM by steve

Nationwide Insurance is touting the value of their 'Accident Forgiveness' program where they promise to not raise rates following an at-fault accident.

But only some drivers will benefit, others will pay more... not after an accident but before.

Insurance is a numbers game, and drivers are usually charged rates based on an assessment of the likelihood they will be in an at-fault accident. And the statistics have historically shown that once someone is in an at-fault accident the odds of them being in a second at-fault accident are higher than people who haven't (yet) been in an at-fault accident. Interestingly, it isn't that the odds of that particular driver being in an accident have gone up, they're pretty much the same driver they've been, it is that the insurance company is now able to identify them as a higher risk, as prior to their accident, those higher risk drives have blended in among the pool of people who haven't had an at-fault accident.

Anyway, back to Nationwide. By promising to not raise rates on people who, by being in an at-fault accident, have identified themselves as higher risk, Nationwide is spreading the costs of insuring these drivers among all of their insured drivers. Put another way, instead of the pool of drivers who haven't had an at-fault accident paying a low rate (based on the statistical presumption that, not having had an at-fault accident in the past, they are less likely to have one in the future) and drivers who have had an at-fault accident paying a higher rate (based on the statistically based assumption that they're more likely to have another at-fault accident), the increase in rates Nationwide would have assessed on the latter group has to be borne by drivers in both groups, thus leaving drivers in the former group having to pay more for insurance than they otherwise would have.

Now this doesn't mean that it is a bad move on Nationwide's part. One of the big fears among drivers - even among those who haven't and aren't likely to have an at-fault accident - is that their rates will go up if they cause an accident. Nationwide is betting that all drivers are willing to pay more up front for insurance in return for an assurance that they won't face higher rates in the future. For drivers who are likely to be in an at-fault accident, this is likely a great deal... for drivers who behave themselves and aren't likely to cause an accident, it's not such a good deal.