California this month joined about a half-dozen states in barring the use of a person’s gender when assessing risk factors for car insurance, a change that could potentially alter rates for scores of drivers across the state.
The state, which is the country’s most populous, requires insurers to prioritize criteria like drivers’ safety records and years of experience behind the wheel when setting auto rates, but it also allows them to weigh other factors, like marital status. Gender had been among the optional criteria until the beginning of this year, when a new regulation went into effect prohibiting the practice.
In announcing the change, the outgoing state insurance commissioner, Dave Jones, said the new regulations “ensure that auto insurance rates are based on factors within a driver’s control, rather than personal characteristics over which drivers have no control.”
Jones’ term as commissioner ended in early January, and the new regulation was one of his final acts. The state’s insurance department, in explaining its reasoning for the change, noted that the industry had inconsistently – and perhaps unfairly – applied gender weighting in pricing.
Some insurers found that female drivers were a higher risk while others claimed the inverse, the department concluded, and the factoring of gender on rates varied widely by location.
“Gender’s relationship to risk of loss no longer appears to be substantial,” the department noted, saying the rationale for using it was “suspect.”
“Charging drivers different rates by their gender might have seemed like a good idea decades ago,” Ricardo Lara, the new state insurance commissioner, said in an e-mailed statement. “Gender, race, ethnicity or sexual orientation are beyond your control, and it is not a fair or even an effective way to predict risk.”
The specific impact on someone’s insurance rates in California remains uncertain. Insurers have until at least July to submit gender-neutral auto rating plans to the state insurance department for review.
Removing the gender factor could in effect equalize rates for inexperienced drivers: Younger men, who have typically paid higher rates, on average might see declines, while younger women could see increases. In an economic analysis of the change, the state insurance department estimated that female drivers with three or fewer years of driving experience are expected to see the biggest impact, with rates going up 6 per cent on average. Male drivers with similar driving experience could have a corresponding decrease of about 5 per cent.
The department’s analysis, based on 17 companies that make up about two-thirds of the state’s consumer car insurance market, estimated scant effect on rates overall.
The impact for any given driver, however, could “vary considerably” by the individual and by insurer, and by the type of coverage chosen, the state noted.
Janet Ruiz, a spokeswoman for the Insurance Information Institute, an industry group, said she didn’t expect California drivers overall to see a big impact on premiums because gender wasn’t one of the top factors used in setting rates anyway.
Other states that ban the use of gender in setting rates include Hawaii, Massachusetts, Montana, North Carolina and Pennsylvania, according to the Consumer Federation of America, a non-profit advocacy group. Most other states allow the practice, and insurers have long argued that the use of gender in setting premiums is sound actuarial practice.
Alyssa Connolly, director of marketing insights at The Zebra, a website that provides auto insurance quotes, suggested that gender as a rating factor tends to have “minimal impact” on rates across the United States. On a national level, the premium difference is about 1 per cent, she said, with men having paid slightly more through 2016, and women paying more since then. Nevada, Utah and Minnesota have the greatest disparity in rates by gender, with premiums varying by 4 to 6 per cent.
Douglas Heller, an insurance expert and consultant, submitted testimony to the state insurance department in support of the change, on behalf of the Consumer Federation of California’s Education Foundation, a consumer rights group. Research he conducted with the Consumer Federation of America found that despite widespread belief to the contrary, women – particularly those over 25 – may often pay “significantly” higher rates than men with similar driving records.
“By using gender as a rating factor,” Heller said in his testimony, “insurers diminish the impact of more appropriate rating factors, such as driver safety, miles driven and driving experience.”
Other groups, including Texas Appleseed, a non-profit advocacy group, have also found that women are often unfairly charged higher rates.
The rule change in California follows the advent of a new state law aimed at accommodating the concerns of transgender people when using identity documents. The Gender Recognition Act of 2017 in part allows Californians to choose, in addition to “male” or “female,” a third category of “nonbinary” on their state driver’s licenses. The law describes nonbinary as an umbrella term for people whose gender identities “fall somewhere outside of the traditional conceptions of strictly either female or male.” The new license option became available Jan. 1.
In Oregon, where drivers may select “not specified” as a third gender category on their licenses, insurers may continue use gender as a factor in setting rates. However, insurers must submit documentation justifying how they rate those drivers.