A 2011 ruling handed down by the European Court of Justice goes into effect Friday that bans gender-based insurance pricing, an equalizing measure which auto insurers say will inflate costs for women across the European Union, who are traditionally charged less than men.
EU Justice Commissioner Viviane Reding said the ruling was a civil rights issue, calling it “an important moment for gender equality in the European Union.”
“Following today’s judgment, it is now clear that an insurance company must not distinguish between women and men; all customers must be treated equally,” Reding said in a statement when the judgment was first delivered. “This is a matter of respect for fundamental rights. It is now also becoming a matter of good business practices.”
However, insurers and policyholders alike have been up in arms leading up to Dec. 21, when the ruling takes effect.
The Association of British Insurers (ABI) said that young women will see the harshest spikes in coverage costs, estimating that female motorists under 25 years old could see an average jump of 25 percent in their auto coverage premiums.
Maggie Craig, ABI acting director general, said that the country’s insurers had been battling gender-based prohibitions in pricing “for the last decade” and called the EU ruling “disappointing news.”
“The judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance,” she said in a statement.
U.S. Insurers Wary of EU Ruling
Insurers in the U.S. are similarly put off by the ruling in Europe, according to the Property Casualty Insurers Association of America (PCI), one of the nation’s largest insurance trade groups.
In the U.S., risk-based pricing has been paramount to how insurers rate their customers; a move toward equalized rating would require lower-risk populations to subsidize the costs of higher-risk populations, a scenario that will essentially play out “at least in the short term” in Europe because of the ruling there, according to Dave Snyder, PCI vice president of international policy.
“The judicial opinion creates real winners and losers that don’t really have anything to do with the cost of insuring them,” Snyder said in an interview with Online Auto Insurance News. “For insurers, there’s an inherent unfairness in rates when social values are put in the place of risk as it comes to pricing insurance.”
Risk-based pricing provides a more sensible, reliable way of charging policyholders, according to Snyder, who said that research has consistently proven that male drivers are linked to more hazardous behavior behind the wheel.
In 2010, he said, men constituted 69 percent of fatal crashes in the U.S., a trend that has “held true since 1975 until 2010,” even as total crash rates have fallen since then.
“Accident rates have declined, and the gender gap has narrowed somewhat, but there is still a significant difference between men and women because male drivers more often engage in riskier driving like speeding, drunk driving and other behaviors that insurers see as unsafe,” he said.
U.S. Efforts to Make Pricing Gender-Neutral Unlikely, Expert Says
Snyder, who has been in the insurance industry for decades, said that the largest nationwide effort touching on gender-related insurance pricing was in the 1970s and 1980s, when the issue was “thoroughly vetted” with a stream of “legislative proposals and insurance department hearings.”
“On a national level, the basic decision was made that rates should be loss-based, and this was the best definition of fairness rather than trying to have rates subsidized in one way or another by a social determination,” he said. “If women have better losses—and they do by and large—they should have better rates.”
Snyder said that the U.S. is unlikely to revisit the issue on a national level, even in light of the recent EU ruling.
“We looked at it intensively in the U.S. and concluded that we wanted insurance rates based on risk,” he said. “I would be surprised if there was a desire to look at this again nationally based on those developments in Europe.”
But that hasn’t stopped state-specific explorations into the issue.
One of the more recent cases of significant legislative discussions about gender-based auto coverage pricing was in Kentucky in October 2001. At the time, lawmakers quizzed industry experts about why younger men paid more in liability and collision auto coverage than their female counterparts.
A National Association of Independent Insurers (NAII) study presented during a joint hearing of the state Committee on Banking and Insurance showed that, if a statewide gender-based pricing prohibition was enacted in the state, young women would pay 6.8 percent more in premiums for liability and collision coverage, subsidizing a 6.1 percent drop in the same premiums for male drivers.
During the hearing, Rep. Robert Damron (D-Jessamine) alleged that use of gender in rating policyholders amounted to sex discrimination. In an exchange with Robert Hearns of the NAII during the hearing, Damron compared gender-based pricing to the unlikely scenario of insurers charging African-Americans more if they were found to be involved in more collisions.
Damron also asked Hearns how auto insurers would react to being subject to state civil rights laws that would throw out gender-based pricing. Hearns responded that the industry would comply but that lawmakers should expect to see the study’s findings unfold, with women subsidizing the cost of younger male drivers.
Risk Assessment in ‘Constant Development’
Currently, a “very distinct minority of states” ban gender rating in auto insurance, according to Snyder, with one of the largest states being Michigan.
Other states that ban gender rating for car coverage include Montana, North Carolina, Massachusetts and Pennsylvania.
In other states, gender can influence the price of a policy by hundreds of dollars, according to a recent study by Onlineautoinsurance.com.
Texas auto insurance companies are considered to be unfairly discriminatory if they use gender-based pricing practices that aren’t based on “sound underwriting or actuarial principles.” This doesn’t stop most Texas insurers from letting gender play at least a partial role in determining customers’ rates, however.
Basing gender-based pricing practices on sound underwriting or actuarial principles “means the company would have to show evidence that you present a greater risk for a loss than other people it is willing to insure,” state regulators say in their consumer guide.
The development of auto coverage rating factors is in constant flux, Synder said, minimizing the impact of statewide efforts to make pricing gender-neutral even if they should come to fruition.
“Auto insurance is arguably one of the most competitive markets in America in terms of the product sold, so there’s a constant development of how to assess risk there,” he said. “While gender continues to be an important factor, it’s never been the only factor, so a move toward barring gender from pricing, though it’s unlikely, won’t upend the entire system.”
Even more factors have been added to the rating spectrum and are now widely accepted across the industry as reliable ways to price coverage, according to Snyder, including credit score, prior loss experience and, most recently, the “actual usage of the motor vehicle.”
“Telematics helps insurers see how the car itself is used,” he said. “It’s a way of measurement that really shows that the market is always seeking more accurate ways to price and risk.”
A recent analysis of nearly 5,000 quotes from OnlineAutoInsurance.com showed that men are generally charged more than women for coverage.