Can insurance be sexist? EU ban equality.

Notice the position of the apostrophe there.

I am sure you have all seen the outcome of the European Court of Justice case 1st March to establish whether insurers are allowed to take into account sex as one of the many risk factors they use in calculating premiums.

From 2013 it will be an illegal act if insurers use sex as a risk factor.

This is not great news for specialist insurers like Sheilas’ Wheels who have taken the initative in offering preferential rates to women drivers.

Whilst this may be another good step on the way to creating true equality it does raise some interesting issues for the whole concept of insurance rating, an art grounded squarely in the statistics of risk-avoidance.

Traditionally insurance premiums are calculated to reflect the risk that is being taken by the insurer. To calculate this risk many factors will be taken into account such as claims costs and expenses already paid out, trends in certain areas and age groups, type of vehicle, security fitted and of course a profit margin for the insurer.

In assessing the level of risk insurers will look at the breakdown of claims paid into different groups – and of course sex has always been one of these.

There is no denying what the statistics show: male drivers, especially the younger ones do have more accidents per capita in comparison to their female risk equivalents; i.e same car, same area, length of driving experience.

  • Men are 3 times more likely to be involved in a fatal car accident than women;
  • Men account for 80% of speeding fines in the UK;
  • 44% of men have used a mobile phone whilst driving compared to 30% of women;
  • 20% of men have fallen asleep at the wheel compared to just 6% of women;
  • In 2003 93% of convicted drink drivers were men.

These statistics would seem to suggest that the sex of a driver is a reasonable way for an insurer to assess the risk they are accepting and should not be looked at any differently to any other underwriting consideration.

What on earth next?

This is not NG1.
This is not NG1.

Am I missing something?  Is it the maths here that’s being sexist or the mathematician?  Perhaps we could help the statistics to be less narrow minded by dropping in a few extra numbers?

The EU ruling rather makes one think this madness might spread to other classes of insurance as well.

Is it fair for example to charge a 50 year old man more for life insurance than a 45 year old?  Whichever way you look at it this is age based discrimination, for good or for bad.  What about charging higher premium’s against theft in Nottingham‘s infamous NG1 postcode area?  Is this discrimination against the people of Nottingham?  Yes.

But whilst it’s discrimination it’s restricted to a very narrow band.  If NG1 residents go looking for non-theft insurance for instance they won’t be subject to the same maths.

And maths is exactly what it is.  As far as I’m aware the actuaries who come up with these algorithms don’t actually have anything against men, old people or the unwashed students delightful people living in NG1.

Insurance Theory and Discrimination are the same thing.

In researching this article, I amused myself (somewhat) by checking the Wikipedia definitions for both “discrimination” and “actuarial science”.  It seems that:

“Discrimination” is the cognitive and sensory capacity or ability to see fine distinctions and perceive differences between objects, subjects, concepts and patterns.

“Actuarial science” is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries.

There’s certainly some common ground there.  Can either exist without the other?  You might forgive me for thinking “No” and asking “Where will this end?” !

The nasty conclusion

Having been given a situation where they cannot charge a woman less – which ought to mean they should charge a man less as the risk is the same – insurers will predictably increase women’s premiums rather than reduce the men’s.

There is no logic to this approach outside of plain old fashioned (albeit mercenary and unfair) commercial practice;   if insurers were happy to accept a premium for a woman driver and now have the same details for a man, beyond any doubt the man’s insurance should reduce.

There has been no increase in risk for the woman driver so what is the justification for increasing their premium?  Unfortunately the reason for the increase is that the premium for men cannot be decreased in line, because they are the ones making all the claims 🙂

Perhaps it’s been a bit of a sour victory for equality if men are still being proven to be more dangerous drivers and women are paying the price.

And once again insurers have done nothing to improve their image.  It was a great marketing opportunity missed but perhaps one that not even they could afford given the risk involved and the overwhelming maths.

I leave you with a quote from Lord Davies of Stamford speaking in the House of Commons 1st March:

it is a pretty remarkable day when an insurance market is instructed to operate contrary to actuarial principles”.

Perhaps we will be seeing more remarkable days in the years to come.

As always, I’d love to know whether you agree.  Has the ruling affected your business or your premiums?  Let me know!

24 comments

  1. The stats should be allowed to do the talking – how many miles you drive is irrelevant – its how many accidents you have – thats the only fair way to charge the premium – but what happened to fair !

  2. Another example of the selective call for equality – I am only surprised that this has not happened sooner!

    We can make statistics show whatever we want, however you have to look at the figures that run alongside and lead to these statistics to get a clear picture. It’s like saying you’re 100 times more likely to get mugged in London than new York; without mentioning that this is tapered by the fact that all people questioned live in London.

    Yes, men have more accidents, but as stated during these findings, mens average annual mileage far exceeds that of their female counterparts. Furthermore, men statistically operate in careers involving driving more than women – how many female truck drivers of white van drivers do we see compared to men?

    If we as women want equality, we have to take it in full, not only where it suits our own interests and this is another step in the right direction.

  3. Hi Adam,

    I think it’s certainly opened a can of worms; there’s some discussion on other linkedin groups around this topic as well, notably the UK Personal Injury Lawyers & Insurers group. Interestingly it appears there is an issue at play in terms of how damages for long term care will be calculated if the annuity and life-based products that underwrite such settlements can no longer be calculated using gender as a risk factor.

  4. The most dangerous risk in America is a young single female. Adding to her youthful exposures is the undesignated boyfriend driving the car with permission. That is one serious problem.

    The second serious problem is that women now are unifiormally engaged in the worklace. They now drive cars as often and for the same purpose as men. Their losses are trending upward as a result.

  5. I personally (these are always my personal opinions), if I controlled a company, would be totally indifferent to whether a particular rating characteristic is allowed or not. It’s a level playing field, as long as those characteristics are allowed (or disallowed) to all companies.

    A change in rating characteristic allowability from the status quo always has winners and losers, both in companies and in customers.

    It would be unpleasant to own a company that had based its marketing premise on the use of a variable which was subsequently banned, but it really is a shift from one set of objective rules to another set of objective rules. However, a company that didn’t base almost their entire marketing effort on that one variable would be a winner in this change, don’t you think?

    Similarly, men and women would be relative winners and losers from this change. It is an ill wind that doesn’t blow at least someone some good.

    The company referenced has alternatives. It’s called “affinity group marketing” and I’m confident that their underwriting selection of *primarily* women could be managed, legally, in the distribution channel, allowing them to maintain a lower average rate level.

  6. Interesting debate. Is it discrimination to charge women less because of lower risk? Is it discrimination to charge young more because of higher risk? Or charge disabled differently? Suspect this one is going to cause major ripples for years to come!!

  7. Maybe we are (I don’t want to defame those I don’t know personally!) but I will say that the ECJ is definitely crazy iro their decision. Might as well legislate that the sqrt(2) is rational!

    That there is definite evidence marking out the differences between m/f and this must be ignored is ridiculous. My big fear now is that someone will persue a similar course of action for age discrimination, forcing annuity rates (amongst other things) to be the “same” value for those aged 25, 50, 75 etc…

  8. …the ECJ concluded a dislocation of risk transference from pricing reality is appropriate? Sounds worryingly familiar (a la 2008 credit crisis etc)? The ‘ethics card’ transcends commercial interest, and perhaps this indicates how the governing body isn’t able to reconcile political ramifications with risk regulation.

    Clearly a woolly subject, but in the interest of equality, women will pay the price this time. Me?… just off for a racey drive with the top down…!

  9. If age can be a factor in premium determination, then why not sex. It is not arguable that the life styles of both sexes are not the same. Moral hazard is one of the issues considered in insurance considerations and that is why select and ultimate table exist in life insurance. Risk are better assessed when all the necessary factors are considered.

  10. The ECJ can basically tell us what to do and we have to do it, sure enough. No revolt will change anything here, I’m afraid. The nett effect here is that premiums will go up for all – it’s like when Ryainair were told they can’t descriminate against people who use wheelchairs by charging them extra, they responded by charging everyone for the provision of the facility. I’m sure the same thing will happen here. Equality Law is an overall good thing and if we pay a bit more, so be it!

  11. This is lunacy – why are we letting this happen? There are differences between men and women just as there are differences between mice and elephants, it’s just the way it is! Underwriting is totally statistically justifyable. None or this nonsense does away will true injustices in the world, you cannot legislate it because one size does not fit all. By the way, does this make it OK for girls to use the gents when there is a queue in the ladies? That would be a much more useful piece of equality!

  12. I for one am perfectly fine with the risks of jackassery and more mileage being taken into account in men’s auto insurance (more mileage is an argument for paying more, not paying less, people), as long as health insurers and employers are also permitted to take into account risks related to pregnancy and corresponding leave, so on and so forth.

  13. I remember from sometime in the 90s reading a statistic that said Black people were far more likely to be involved in an accident than White people, and Asians even more likely…

    But you wouldn’t let an insurance company rate their premiums on race… So why should you let them rate on sex?

    Per Mile, women have more accidents (as shown in the telegraph), however they tend to have lower speed accidents.

    Also, when a women is about to be involved in a head on collision they will (tend) to take their hands off the wheel and protect their face., Whereas men when in the same situation, will tense and lock their arms and legs on the wheel and brake, and push themselves into the back of the seat, in an effort to both move themselves as far away from the accident as possible, and to keep as much control of the vehicle as they can. This act causes the man to suffer much greater injuries from the same accident, causing their claim to be higher.

    All swings and roundabouts really, however it is right that premiums should not be based on sex. Personally I have seen my premiums go down slightly this year, even though I have moved from a 2.4Turbo into a 2.9 Twin Turbo.

  14. Women crash more per mile than men, it’s proven. Statistics only represent what was recorded. Women get let off crimes 90% more often than men, so their crimes go unrecorded. 78% of the time when there is a dispute between man and woman the man is wrongly convicted and the woman’s story is believed. Then the statistics self perpetuate, as judges thing “well it is more often the man’s fault based on statistics”. I cannot believe that drunk driving statistic when the only drunk drivers I know are females, and they’ve told me how they get off the charge by acting all weepy and manipulating the officer, pretending they have some crisis.

    1. If anyone thinks that insurance premiums will go up for females is sadly mistaking. Although I agree completely that someone should not be pigeon holed and discriminated against due to being m or f, I do think that insurance companies will find a way around this. They could realistically keep premiums exactly the same, simply by looking at things like miles per year. Men drive more, so on average will pay more without the generalised discrimination that currently goes on. I’m a 28 year old male and have never been involved in an accident. I drive very carefully. Not because my insurance company tells me so, but I drive carefully because I value the life of myself and others. I think good call by the courts, but it wont affect us men, because at the end of the day… Insurance companies can simply apply another rule, that will discriminate against men without being so direct.

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