Insuring a Teenage Driver: Mitigating the Cost

by Staff Writer on December 15, 2011


Why is Young Driver Insurance So High?

The high cost of insurance on a young driver is due to one simple fact; teen drivers pose a higher risk of loss. Insurance premiums, whether for life, health or automobile, are based on risk. The risk of accidents for young, inexperienced drivers is four times higher than the risks associated with adult drivers.  The cost of individual claims from teenager-involved accidents is also higher than with adult drivers. As such, insurance companies charge a higher premium to offset potential losses.

How to Mitigate the Risk and Reduce Insurance Costs

Mitigating the risks associated with teen drivers not only reduces insurance costs, but also saves lives. According to a 2007 study, eight teenagers die every day as a result of automobile crashes. Motor vehicle safety programs, like graduated licenses, help reduce the number of teenage driver accidents by 8-40 percent. Such programs prove that by restricting the driving privileges of young drivers and increasing driver education requirements, teenagers have fewer accidents. Additionally, the severity of such accidents, when they do happen, is greatly reduced. Reducing risks reduces the cost of insurance premiums, at least in theory.

What is Graduated Licensing?

A graduated license requires young drivers to complete various stages of driver education and hands-on training before receiving full driving privileges.  Laws and programs vary, but typically a new teen driver is required to complete state-approved driver education classes before obtaining a learning permit. Specific hands-on driver training is required during the learning phase. Most programs include an intermediate stage between a learner’s permit and a full license. During the intermediate stage, driving is restricted based on time of day and number of passengers. Some states add further requirements and restrictions, such as satisfactory school progress and no criminal charges, in order for a young driver to retain driving privileges.

All 50 states have some form of graduated licensing or restricted privileges for teen drivers. In 48 of the 50 states, nighttime driving is restricted for young drivers. The number of passengers allowed in the car with a teen driver is restricted in 45 states.  According to numerous national studies, the more restrictive a graduated licensing program, the great the impact on accident statistics. Depending on the state, some restrictions do not allow full driving privileges until 18, which further reduces teen-related accidents and fatalities.

Additional Safety Law Increase Effectiveness

The National Institute of Health (NIH) funded numerous teen driver studies, releasing a cumulative report in late 2011. The report addressed the effectiveness of restricted driving privileges and graduate licensing. According to NIH, the level of restrictions place on new drivers had significant effect on whether graduated licensing reduced accidents. The study further revealed that the passage of additional laws, beyond just graduate licenses, further reduced the risks posed by young drivers. For example, when combined with seat belt laws and steep penalties for possession of alcohol by persons under 20, graduated license programs were shown to be more effective than programs that did not enact additional safety laws.

Current GDL Programs and Insurance

In spite of studies indicating the reduce risks associated with graduated drivers license programs (GDLs), few insurance companies reduce premiums in states with restrictions. Many states did not enact restrictive laws until the first decade of the 21st century. Even states with older graduate licensing laws did not begin enacting such restrictions until the late 1990s. As such, many private insurance companies claim that research data is inconclusive regarding actual risk reduction. Accordingly, private insurance companies in many states do not discount rates in relation to graduated licensing.

Companies do, however, offer discounts for approved driver’s education programs. Most states require formal driver’s education as part of a graduated license. Provided the course is a minimum of 30 hours and includes both classroom and hands-on driver training, most insurance companies will discount premiums for a young driver. Until further research is conducted, however, it is unlikely insurance companies will substantially change teen driver premiums because of graduated licensing. As such, some parents opt not to allow their teen to drive until 18, to avoid the high cost of young driver insurance.

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