St. Paul Travelers and other insurers have begun offering discounts on car insurance for hybrid vehicle owners. Travelers was expecting to roll out the discount in January, while Farmers Insurance Group, a unit of the giant Zurich Financial Services AG, began offering a 5% discount in October for customers in California who own a hybrid or alternative-fuel vehicle. Travelers’ discount will equal 10%.

Other insurers including State Farm, however, say they will not offer these discounts to hybrid owners, citing increased repair costs of hybrids and concern over risks the electric components might pose in the event of an accident.

Insurance premiums are calculated based on a number of factors including type of vehicle, vehicle price and driver characteristics. Travelers and Farmers are applying the new discounts after the normal calculating procedure has been applied.

A component of Travelers discount is based on evidence that suggests hybrid drivers fall into a “preferred group” that is typically married with ages ranging between 41-60.

It's definitely about rewarding drivers," says Greg Toczydlowski, senior vice president of product management for Travelers. "And as we look at the growth of that marketplace, we want to be well positioned in that market."

Hybrids take off

Hybrids have grown steadily from two models and less than 10,000 sold in 2000 to 11 models and 212,000 sold in 2005. J.D. Power and Associates estimates hybrid sales will increase 268% to 780,000 among perhaps 52 models in 2012.

Toczydlowski says that St. Paul Travelers first became aware of the potential for growth in the hybrid market after Hurricane Katrina. As he stood at the pump filling his family's SUV with fuel, he watched a hybrid owner zip in and out, filling the car's tank before his own was halfway done. "We did some research after that, and all the trends are very encouraging," he says.

It's debatable whether driving a hybrid actually saves consumers money. Currently, hybrid owners benefit from a tax credit (see sidebar article) ranging from $250 to $3,150, depending on the car. But they also pay a premium for the hybrid powertrain, often $3,000 over the base price. And because they are so popular, getting a discount is next to impossible. Some Toyota Prius buyers have paid more than sticker price for their wheels.

The insurance discount should amount to about $100 a year, Travelers says. The discount still needs to be approved by individual states since insurance is regulated on the state level. And two of Travelers' insurance components--covering personal injury and a collision with an uninsured motorist--will not have the discount. Toczydlowski says those two plans make up 15% of Travelers' auto insurance business.

Are hybrids inherently less safe?

Not all auto insurers are sold on the idea that hybrids deserve an auto insurance discount. State Farm spokesman Kip Diggs says his company doesn't plan to follow Travelers lead.

Hybrid owners, on average, tend to get into as many accidents as other drivers, Diggs says. State Farm also takes into account how much it costs to fix a damaged hybrid.

"Some of those vehicles, depending on where they are hit, the cost for repair is going to be substantially greater," Diggs says.  State Farm does not believe the risk is workable.

Some concerned groups have focused on the possible dangers associated with the systems used to power the vehicles, questioning the risks the electric components might pose in the event of an accident. These have primarily been emergency responders and firefighters.

Other experts say hybrids pose no more danger than gasoline-powered vehicles and the electrical concerns are unfounded—as long as rescue procedures are followed. In fact, many hybrids offer the best in newer safety technologies, such as stability control, anti-lock brakes and side air bags.

In an effort to allay the fears regarding hybrid electrical systems, auto manufacturers post manuals outlining rescue procedures online, and they have provided safety courses to emergency workers, including hands-on training. The bottom line, according to Honda training instructor Jesus Almeida, is that hybrid vehicles cause no greater concern for passengers or rescuers in the event of a collision than other vehicles. However, laden with similar loads of gasoline, antifreeze, and other potentially dangerous fluids, hybrids don't pose any less danger, either.

Adds Ford Spokesperson Nick Twork: "There's a very, very low likelihood that anybody would be injured with the precautions that are built into the vehicle. It should be no different than dealing with any gasoline-powered car."