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It’s time we stop linking insurance risk to gender

In March 2011, the European Court of Justice ruled that "it was legally inappropriate to link insurance risk to a person's sex."



“I’ve never been in a car accident,” Sean McQuillan, then 20, told the Montana House of Representatives’ Committee on Business and Labor in March 2013. “I’ve never gotten a ticket. And I’ve never been pulled
over by a police officer. And the biggest indicator to me that I’m a safe driver is my 88-yearold grandfather… criticizes me for driving slow and for stopping so soundly at every four-way intersection.”

But McQuillan’s premiums were in danger of skyrocketing. Montana state representative Wendy Warburton had sponsored a bill to end the state’s rare unisex insurance law. The bill’s proponents argued that allowing insurers to rate on gender would let them use just one rating system across the country, thus saving Montanans—especially women—money.

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“Currently, in Montana, with the law we have now, my sister and I would pay the exact same for our car insurance,” argued McQuillan. “If the bill before you were to be enacted, I would pay more simply because I am a male… It’s discrimination and it’s wrong.”

The traditional thinking, of course, is men are statistically more likely to get into serious car accidents. And stats can support that—the Ontario Provincial Police found twice as many males (2,358) as females (1,146) died in car accidents in the province from 2005 to 2014, and young drivers are disproportionately affected.

But not everyone thinks it’s fair to penalize customers because of one biological fact they can’t change, especially now that insurers can tie risk to individuals, not to simply large swaths of policyholders.

Warburton’s bill, for instance, died in Standing Committee in April 2013. And in March 2011, the European Court of Justice ruled that “it was legally inappropriate to link insurance risk to a person’s sex,” says Liz Michael, a senior consultant at Willis Towers Watson in London. The ruling came into effect on December 21, 2012, and clarified the court’s 2004 Gender Directive, which included an optout clause for insurers, provided different rates were supported by accurate data.

Insurance companies can still rate on age and postal code, though “everything that’s done is against the backdrop that the European rules also seek to prevent discrimination on grounds of things like social background and age,” says Noleen John, a corporate and regulatory insurance consultant at Norton Rose Fulbright in London. She also predicts the EU at some point will phase in “more detailed age discrimination rules in due course.”

Michael isn’t as sure, but notes, “there is some concern and speculation that other rating factors may be affected,” such as postal codes. Some have argued “exactly where you live is not something you can readily change unless you’re particularly wealthy.”

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But so far, only the Gender Directive has become law, and even that left many European insurers confused. The ruling “had a pretty seismic effect on the whole of financial services in Europe,” says Charlotte Halkett, the marketing actuary at Insure the Box, a telematics-based insurer in the UK. “…The first thing you learned when you went to baby pricing school was the gender curve,” and how different men and women’s ratings need to be.

While the ECJ didn’t specify how companies should rate policies without using gender, Halkett says “what traditional insurers did was rate other factors. So you’ll find firefighters became more expensive and nursery nurses became a lot cheaper, for insurance… And equally, type of car can be quite gender-specific. So if you have a particular sort of Fiat Pinto or something, it tends to be bought by young women more than young men.”

It’s fair enough to charge customers more if their vehicle is proven to be more likely to crash or more expensive to repair. The Association of British Insurers classifies vehicles by make and model, as does the IBC here in Canada. But, Michael warns, companies “would be careful that they were not seen to be indirectly discriminating on gender through occupation,” which would not comply with the directive.

Insurers can, however, target their sales to certain professions by working with their regulatory bodies and setting composite rates that apply equally to everyone in a given organization. And “if you sell [policies] to the Royal College of Nursing,” says John, “…you would have a different dynamic than if you sell to the Royal Institute of Engineers.” But courts could challenge insurers who will only sell policies to nurses, kindergarten teachers, social workers and other traditionally female-dominated professions as being discriminatory. “If there were a single indirect proxy for [gender], then that would be problematic.”

Men and women’s risk levels actually even out in middle age, and when women hit their later years, their premiums often increase. Traditionally, Michael says, insurers thought older women were likely to be widowed and just beginning to drive regularly after decades of having their husbands do most of the motoring. The trend, however, may not continue as younger couples split driving between them.

In the transitional period before the ruling came into effect, “there was a bit of a land grab for the young female market,” Michael says. Premium discrepancies were largest in the 16-to-24 bracket so while insurers still could, they slashed prices for young female drivers in the hopes they’d stay with them after the ruling kicked in and costs spiked.

But prices didn’t jump as much as some feared. A Towers Watson/ Confused.com study revealed that in the last quarter of 2012, British women under 30 saw their premiums increase. Seventeen-to-20-year-old women were hardest hit, paying an additional 16.4 percent, while their male counterparts paid 10.7 percent less.

But in January 2014, another Towers Watson/Confused.com study took stock of enforced unisex pricing’s effects on young drivers a year after implementation. “The premium rises of 15 percent to 20 percent that were widely forecast… have not materialized,” the study determined. Instead, men saw average reductions of 13.5 percent and women 11.9 percent, mainly due to the soft market, competitive maneuvering and increased telematics options.

Bonkers money

When the directive came out, the Internet was full of pithy phrases about how risk equality trumps gender and age equality. But while “actuaries get incredibly excited about gender as a risk factor,” says Charlotte Halkett of Insure the Box, sex, age and postal code are just proxies for risk. “They don’t mean anything. Fundamentally, in insurance, you don’t actually care how someone is or if they’re a man or a woman or what they drive or any of this stuff… The only thing that’s important is ‘How much are these people going to cost me over the next year?’”

And you don’t always need to know a client’s gender to figure that out. Telematics, says Michael, “allow a younger driver to prove that they’re a better risk than their average group.”

While data from Insure the Box shows young men are twice as likely to brake aggressively and break the speed limit, and 60 percent more likely to drive at night, there are plenty of exceptions. “So once you stick a black box in everyone’s car and you measure how they actually drive,” says Halkett, “gender becomes a hell of a lot less important from that point of view.”

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Such specific feedback also helps bring costs down for young UK drivers, who had been facing premiums of up to £4,000 [more than $8,200 Cdn], due in part to the British unlimited liability system. “So it was absolutely bonkers money,” says Halkett, which is why many insurers turned to telematics. “And now motor insurance for young people has gone down to somewhere around £1,000 to £2,000 pounds [$2,000 to $4,000 Cdn], which is still crazy money but not like it used to be five years ago.”

Just after the gender directive came out, Insure the Box launched the auto coverage program Drive Like A Girl. With a name like that—and a logo in which the final “i” is dotted with a pink heart—the company is certainly marketed towards young women. But the gender directive doesn’t include marketing practices. As long as all products are equally priced and available, companies can decorate their websites with as many sparkly hearts as they like.

Halkett declined to share the gender breakdown of Drive Like A Girl’s customers, citing commercial sensitivity, but says customers’ driving styles are more important than their gender.

Telematics isn’t the only way to implement gender-free ratings. The Insurance Corporation of British Columbia works under similar restrictions. “As a regulated universal provider, ICBC is prohibited by provincial law from using personal characteristics such as age and gender in setting its rates,” spokesperson Lindsay Olsen told Top Broker in an email. It instead focuses on claims history, address and rate classes.

Similarly, “the Saskatchewan Auto Fund has never used gender, address or age when determining rates,” SGI spokesperson Kelley Brinkworth emailed Top Broker, also noting the company asks for policyholders’ occupations to determine income replacement benefits. And while the Crown insurer ran a telematics pilot program for motorcycles from 2013 to 2015, it’s not currently considered when determining rates.

Instead, SGI’s Safe Driver Recognition program increases policyholder discounts for each year of incident-free driving, and drivers face financial penalties after being involved in at-fault collisions or receiving traffic convictions. Discounts currently range from two to 20 percent, and penalties are capped at $25 per incident to a maximum of $500. In mid-2016, discounts will increase to 25 percent and penalties will double to a max of $1,000.

But for other markets contemplating the switch to unisex pricing, the trouble’s in the transition. “…Once you’ve got through that hump of uncertainty,” says Michael, “everything very much settles down.”

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Copyright © 2016 Transcontinental Media G.P. This article first appeared in the March 2016 edition of Canadian Insurance Top Broker magazine

Transcontinental Media G.P.