A 2011 ruling by the European Court of Justice went into
effect which bans insurance pricing that is based on gender. This measure will
equalize pricing but auto insurers say it will raise rates for women drivers
across the European Union. Woman traditionally pay less than men for coverage.
Viviane Reding, a EU Justice Commissioner said in a
statement that the ruling was “an important moment for gender equality in the
European Union.” Reding also said, “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. This is a matter of respect for fundamental
rights. It is now also becoming a matter of good business practices.”
Insurers and policyholders have both disagreed with the
ruling. According to the Association of British Insurers (ABI) young women will
see the biggest hike in premium costs. They estimate that female drivers who
were under the age of 25 could see their premiums jump up 25 percent or more.
Maggie Craig, ABI acting director general, said in a statement that gender does
matter in pricing, “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.”
U.S. Insurers Concerned
U.S insurers are concerned about the ruling and effects it
could have on the U.S market. Risk based pricing is the bedrock of car insurance
pricing and if U.S law moved towards equalized pricing insurers predict that
lower-risk populations will end up subsidizing higher risk drivers.
According to industry experts, the European ruling creates
an inherent unfairness in rates. Putting social values above documented risk
factors will create unfair pricing. Risk-based pricing, according to insurance
advocates is a more reliable way to charge drivers, they cite studies which
consistently show that male drivers exhibit more dangerous behaviors when they
get behind the wheel.
In 2010, men were responsible for 69 percent of all fatal
crashes in the U.S, this is a trend that has been true for decades. While the
gender gap in regards to accidents has narrowed, the difference between male
and female drivers is still significant. Men still tend to engage in risky
behaviors like drunk driving and speeding at much higher rates than women.
Risk Assessment is Constantly Changing
While there are a few states that don’t allow gender ratings
when assigning insurance premiums, most states allow it. Michigan, Montana,
North Carolina, Massachusetts and Pennsylvania ban gender ratings.
In states that allow gender to be included in risk
assessment, policy prices can vary by hundreds of dollars a year. Most states
do require that gender-based pricing be based on sound actuarial and
underwriting principals. This means that insurers must be able to provide
evidence that certain gender and age groups are a greater risk than other
While gender is a factor when assessing risk, it is only one
of many. In the highly competitive car insurance marketplace, insurers are
always looking for ways to make risk assessment more accurate. Major factors
that are considered are credit scores, prior losses/claims and increasingly,
the actual use of the car. Telematics are becoming much more common and these
devices help insurance companies see how the car is actually being driven. It
allows insurers to more accurately price policies.
While gender-neutral risk assessment has recently become law
in the European Union there is a little chance that it will become common
practice in the United States. General neutral pricing often results in
dramatic pricing increases for young women.