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 drivers.
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.
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