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Nixing gender in car insurance pricing may not lead to more equitable rates

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Nixing gender in car insurance pricing may not lead to more equitable rates

While several states now ban the use of gender in underwriting car insurance policies, experience behind the wheel is actually better at leveling price differences between the sexes, data show.

Even with the rise of technology that helps insurance companies better evaluate driving habits, insurers have continued to stress the need to use as much non-behavioral data as they can to make underwriting decisions. Consumer advocate groups, on the other hand, have pressed regulators and state legislators to limit the scope of the data that insurers can turn to in the underwriting process. Using gender and other non-driving factors such as occupation and education are banned in several states.

Younger men usually pay more

California outlawed using gender for determining car insurance premium rates, effective July 1. Regulators in the Golden State expect that removing gender as a factor will increase premiums for women with the least amount of driving experience by about 6% and lower rates for less-experienced men by about 5.4%, according to a state analysis.

Insurance companies historically have pegged men with little experience as the highest-risk drivers; they tend to pay the highest rates when gender is included as a rating factor, S&P Global Market Intelligence data shows. Gender-linked risk narrows significantly between men and women as motorists reach 20 years of driving experience. Nationwide and including all levels of driving experience, men's and women's risk and premium rates scarcely differ at all, according to the car insurance quote comparison site The Zebra.

Gender accounts for a premium rate difference of just 1%, with men paying about $10 less in average annual premium, according to researcher Alyssa Connolly. Only four states have an average annual variation of 4% to 5%. The largest disparity is in Nevada, where the gender difference is about 6%, Connolly said. All the differences favor male drivers.

"I do think it speaks to the lack of impact that gender has that the max of any state is 6%," Connolly said in an interview.

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The American Property Casualty Insurance Association, an industry trade group, believes states should allow carriers to include as many traits as reasonably possible that help them determine driving risks. Calculating factors that insurers know can ramp up the likelihood of accident losses allows companies to write policies best suited for each customer, said Alex Hageli, director of personal lines policy.

"By taking away an actuarially justified rating factor, you make that proposition less likely," Hageli said in an interview.

Crash data demonstrates that men really are higher-risk drivers, according to an analysis by the Insurance Institute for Highway Safety. Males drive more miles than females and make more dangerous choices like not wearing seat belts, driving drunk and speeding. And men tend to be involved in crashes that are more severe than those that involve women, the analysis showed. Also, women are more likely than men to die in crashes of equal severity. The difference in fatality risk between the genders fades in older age groups.

Unanticipated consequences

While California anticipates that women and men with the same amount of driving experience will start paying the same premium rates when its gender-underwriting ban goes into effect, that has not always been the case when similar regulatory action was taken elsewhere. For instance, removing gender in car insurance underwriting produced results in the U.K. that could be seen as surprising. Since the European Union outlawed gender as a rating factor in 2012, premium prices have moved in opposite directions from what observers expected, according to the U.K. price comparison organization Confused.com.

Before the regulation took effect, British women paid less than men on average for car insurance. When gender was removed as a rating factor, rather than bringing average premiums between the genders closer together, the average difference actually widened to nearly £100 annually in 2018 from about £27, according to a recent study. The organization suggested that other rating factors might be weighing more heavily in pricing with gender taken out of consideration.

"Men tend to drive more expensive cars with larger engines and loaded with new technology, on average, which makes for higher-value claims," according to a report on 2018 U.K. auto rates. Men also tend to have "significantly more" driving convictions, according to the study.

Motivating California's ban on using gender as a rating factor was a new state law allowing a "nonbinary" self designation for those who do not identify as strictly male or female. Because insurers said they are not certain how to rate those customers, the insurance department thought it could be unfair to assign them a gender rating.

Quantifying driving risk by gender is an unsettled actuarial science. California's Department of Insurance found that the relationship between gender and insurance losses does not appear to be significant. Carriers rate gender risk differently given similar outside factors, and some of those variations changed by location, a state report showed.

A nationwide 2017 price quote survey conducted by the Consumer Federation of America, on the other hand, found that many large auto insurers charged older women more than men in the same age group.

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Tech may flip the script

California is one of just a small handful of states that have outlawed underwriting based on gender. Of the dozens of factors that companies use to set car insurance premium rates, proposals to drop gender rarely encounter sharp opposition, said Michael Barry, a spokesman with the Insurance Information Institute. California's insurance department reported the same tepid response to its proposal during an interview that departing Commissioner Dave Jones gave to S&P Global Market Intelligence.

Public response is not as muted for factors related to social class, Barry said in an interview.

"The gender rating criterion stirs a limited interest in comparison to the use of education, occupation or the use of credit-based insurance scores," Barry said.

Young men who are safe drivers might be able to get around expensive ratings with technology-enabled policies, insurance researcher Laura Adams said. Usage-based policies that price according to how and where you drive can better tailor risk individually, she said in an interview. Companies use driving analytics to measure motorists' average speed, the time of day they drive, how hard they brake and how safely they take corners.

"They truly are looking at charging you rates and giving you discounts based on how good of a driver you are," Adams said. But to take advantage of the new policies, drivers would have to sacrifice some privacy in return for more personalized insurance costs, she cautioned.