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?
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!