Cash From Clunkers

One financial upside (for corporate America anyway) to trading in old clunkers for new cars? Higher auto insurance premiums for those new rides...to the tune of $375 million.

Progressive Corp. and Berkshire Hathaway Inc.’s Geico Corp. are among insurers that may benefit from the U.S. “cash for clunkers” program as drivers pay higher premiums to protect new cars.

The government’s vehicle trade-in initiative could yield as much as $375 million in premiums, said Robert Hartwig, the president of the New York-based Insurance Information Institute.

“When they buy that new vehicle, the insurance generally will cost more,” Hartwig said in an interview. “It’s a newer vehicle and people will normally take out full coverage of the car. Any auto insurer would stand to gain.”

A rebound in auto sales amid the clunkers program may bring relief to auto insurers facing pressure from rising medical costs, reduced consumer purchases and declines in the value of fixed-income holdings. Progressive last month reported its first quarterly gain in net income since 2006, and Geico’s profit fell 63 percent in the second quarter on an increase in claims.

A bit of a cautionary note then for much more expensive insurance for people. The insurance companies want new customers, you see.