(Dow Jones) – Drivers of hybrid cars frequently get a discount on their auto insurance policies just for being “green,” but one insurer argues that such discounts makes sense, and money.

That’s the way Farmers Insurance Group views the 10% hybrid car insurance discount the company pioneered in 2005.

“We thought it was the responsible thing to do,” said Brian Dwyer, senior vice president of auto for Farmers, which is a unit of Zurich Financial Group AG ( ZFSVY). Farmers began offering the discount in California, home to about 25% of all hybrid vehicles registered in the U.S. “We had a theory that it might turn out to be a better loss ratio,” Dwyer said.
After studying its results in California, in 2006 the company expanded the 10% discount to all the states in which it operates, and has found that the discount brings in a choice customer segment, despite finding that some costs might run higher for these customers.

Now, Farmers insures about 90,000 hybrid cars in the U.S, or about 7% of all hybrids sold in the last decade, according to figures compiled by research company Edmunds Inc. These numbers don’t include policies Farmers picked up in its purchase of American International Group Inc.’s (AIG) auto-insurance business, which closed earlier this month. That acquisition moved Farmers to the top four auto insurers in the U.S.

Dwyer wouldn’t provide data, but he said there was some truth to a research finding by Quality Planning Corp. that collision costs for hybrid vehicles are higher on average than those for traditional gasoline-powered cars. The study found that, for 2008 models, the cost to insurers for providing collision coverage for hybrids was 13% higher than for conventional vehicles.

Dwyer wouldn’t comment on how Farmer’s results differed from the research estimate, but he said better-than-average results in both bodily-injury and property-damage costs made up for the discount even though the cars may cost a bit more on average to repair. Overall, hybrid drivers have lived up to their reputation for being careful and responsible in their approach to driving, he said.

Hybrid drivers also tend to drive a bit more than non-hybrid owners, as the research suggested, but Dwyer said it was hard to tell if these drivers always drove more and bought a hybrid to decrease their environmental impact, or were adding miles because they own a hybrid. He called it a “chicken-or-egg” question.

Dwyer said it would probably be good for insurers and the country if a higher percentage of drivers switch to hybrid technology, which uses a combination of gasoline and electric engines to conserve fossil fuels. According to Edmunds, about 0.8% of cars sold in the U.S. since 1999 are hybrids. So far in 2009, hybrids made up about 2.6% of all cars sold in the U.S.

Dwyer said he saw no evidence that hybrid-car drivers on average received ” markedly more” traffic violations than other drivers, which Quality Planning found to be the case for some models. The researcher said that, for one popular make of hybrid, Toyota Motor Corp.’s (TM) Prius, hybrid-car owners had 65% more traffic tickets than their conventional-car peers. The relatively high percentage of hybrids that are owned by urban residents could account for some of the higher ticket averages, the researcher said.

Dwyer said Farmers is going after the environmentalist market again with a ” green” homeowners-insurance policy that will cover the cost of rebuilding with green materials and recycling building debris.

J. Robert Hunter, director of insurance at Consumer Federation, a consumer- advocacy group, said in a recent interview that he wasn’t impressed with insurer discounts for hybrids. “There is a lot of pressure from environmentalists to do something and the insurance industry has been pretty slow” to respond, Hunter said. “They have come up with a series of gimmicks, so they can say they are doing something.”

As for Farmers: “We are exploring all types of opportunities for green,” Dwyer said.