The inconsistent correlations between gender and car insurance rates

California has joined the list of states to ban gender-based car insurance rates, but new data suggests that women pay more despite men being riskier drivers

19Jun

Although strides are being made to close the gender gap, gender inequality still prevails. Women are still paid lower salaries than men yet pay higher prices for a range of products or services from clothing to haircuts. It is a retail phenomenon commonly called "pink tax". In recent years, this gender disparity has also extended to car insurance.

Women pay more for car insurance despite men being riskier drivers

According to a 2019 study conducted by The Zebra, women in the US pay more for car insurance in 25 states, while men pay more in just 19. Just a few years ago, however, the picture was different; in 2016, men were paying more for auto insurance in 33 states while women paid more in 12 states. So, what happened in three years to double that number? Although there is no clear answer, one theory suggests that perhaps the reason for the shift is that women are submitting more claims than men.

What is baffling is that women pay higher auto insurance premiums despite evidence that shows that men are riskier drivers. The Insurance Institute for Highway Safety (IIHS) reports the following statistics:

  • In 2017, 71% of motor vehicle crash deaths were caused by men.
  • Men typically drive more miles than women, thereby increasing their chance of being in a car accident.
  • Men are more likely to engage in risky driving practices such as not using seat belts, driving under the influence of alcohol and speeding.
  • Car crashes involving male drivers are often more severe or fatal than those involving female drivers.

Inconsistency in auto insurance rates

Auto insurance rates have always been wildly inconsistent. Pricing differs from one state to another and from one insurer to another. The CFA's research further revealed that insurance companies do not only charge different rates based on gender but also according to the city you live in.

Older women, in particular, bear the brunt of higher prices. The Consumer Federation of America (CFA) found that women between the age of 40–60 pay more for car insurance than men of the same age, even with a spotless driving record.

For example, insurance provider Progressive hikes the insurance premium of 40-year-old female drivers by 32% in Tampa but only adds a 3% increase on women in Oklahoma City. Allstate dropped rates for 40-year-old women in Houston and Tampa by 21% but increased rates by 17% and 11% for women in Baltimore and Seattle, respectively. Research by Texas Appleseed in 2018 found that women in Texas paid, on average, $56 more a year than men for auto insurance. Single and divorced women paid, on average, $80 more a year compared to single or divorced men.

The CFA's director of insurance, J. Robert Hunter, stated: "State insurance commissioners should insist that auto insurers explain why they usually charge middle-aged and older women higher rates than men", although Stateline claims that the insurance companies they contacted refused to comment or explain the factors that determined the higher rates for women.

Who regulates the auto insurance industry?

Auto insurance is mandatory in the US and every driver is required to have at least basic liability coverage. Making auto insurance compulsory gives the insurance industry the upper hand as consumers are forced to buy insurance.

To avoid unfair practices, who regulates the insurance industry, insurance companies in the US are regulated by an insurance bureau on a state-by-state basis. They are responsible for ensuring insurance companies provide fair prices to consumers. All these state departments have a commissioner of insurance who reports to the National Association of Insurance Commissioners (NAIC).

Should gender be a factor in car insurance rates?

Using gender as a factor to determine a customer's insurance rate is coming under more scrutiny. In January 2019, California joined six other states in banning the use of gender in car insurance pricing. Hawaii, Massachusetts, Pennsylvania, North Carolina, Montana and parts of Michigan already prohibit gender-based car insurance pricing.

When it comes to assessing an individual's risk, auto insurers take a number of factors into account, including age, gender, marital status, driving history, profession, type of vehicle, what the vehicle is used for (commercial auto insurance, for instance, usually costs more than personal auto insurance), vehicle safety rating, credit history and location.

Most of these are backed by statistics. For example, some neighborhoods experience higher vehicle thefts and break-ins. But where the relationship between factors such as age or marital status and prices are less obvious, the CFA is urging state regulators to investigate gender-based pricing.

Can we hope for a change?

We might hope that an increased reliance on big data to determine insurance policies might provide fairer, more accurate rates based on relevant factors, such as driving history or vehicle safety ratings. The purpose of big data is often to form real-time or predictive analyses across a wide range of factors, which makes it ideal on paper for insurance companies which are aiming to predict the likelihood and severity of a potential future incident.

However, these methods are only as effective as the data behind them, meaning it is likely that gender will continue to influence insurance prices for as long as providers consider it a factor worth assessing. At the very least, we might be hopeful that policies informed directly by data will provide us with explanations or evidence to support the need for gender-based rates in future.

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