Any parent of a teenager knows that putting new male driver on the family auto insurance policy is significantly more expensive than insuring a new female driver. However, some recent studies have shown that women in some markets are actually paying higher insurance rates as they age, and that gender-based insuring ratings are applied inconsistently.
At the end of last year, outgoing California Insurance Commissioner Dave Jones issued new regulations that prohibit the use of gender in insurance ratings in that state (the new regulations took effect on Jan. 1). That could help even out rates between men and women across age groups.
A 2017 study by the Consumer Federation of America showed that women across the U.S. are often charged more for auto insurance. To conduct the study, CFA researchers obtained online premium quotes from the websites of Allstate, Farmers, GEICO, Liberty Mutual, Progressive, and State Farm, then compared 165 pairs of quotes for men and women.
The study found that 40- to 60-year-old women with good driving records were charged more than men for the same coverage nearly twice as often as men were charged a higher rate. Conversely, 20-year-old women had lower premiums than men in the same age group, unless they bought insurance form Geico, which charged younger female drivers more than men in nine of ten cities surveyed. Geico, in fact, charged women more 83 percent of the time, while State Farm almost never did.
That wasn’t the only inconsistency. CFA found that in more than two-thirds of the test they conducted, at least one company rated female drivers a higher risk, while another company found them to be a lower risk. Insurers are all over the map when it comes to factoring in gender for insurance ratings.
“It is widely believed that male drivers, especially young male drivers, cause more, and costlier, accidents,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “State insurance commissioners should insist that auto insurers explain why they usually charge middle-aged and older women higher rates than men,” he added.
“This makes no sense,” Hunter added. “If these large insurance companies are abiding by actuarial principles, you would not find one insurer granting a 21 percent price break for female drivers while another company sees a need for a 32 percent surcharge on those same drivers. Also, how can a company think that the women of Tampa are very high risks, but women of Cleveland are very low risks relative to men? A woman moving from Tampa to Cleveland does not magically become a better driver. What this really tells us is that either some companies are ignoring the data or that gender is not a good indicator of risk and should not be used.”
Another 2018 study by Texas Appleseed found that women in that state paid $56 more per year on average for auto insurance that satisfies state minimum requirements. Single and divorced women paid $80 more per year.
The Texas study showed a wide range of premium differences, sometimes based on marital status, and many times too inconsistent across different insurers to reflect actual differences in driver risk.
Among the findings:
- Progressive and Farmers charged widowed women premiums that were 12 to 13 percent higher than widowed men. Geico also charged a “widow penalty,” while Allstate actually reduced premiums for widows. State Farm charged the same rate for both genders.
- In Houston, women with perfect driving records pay $75 more on average than men with the same record, same vehicle, and same address. Farmers was the worst offender, charging an average of $144 more to women than men.
- People who get divorced see an annual average increase of $49 in their premiums, but women are generally charged a higher rate than divorced men – an average of $80 for basic coverage. In Tyler, Laredo and Amarillo, divorced women pay between $51 and $61 more per year than married women, while divorced men in those same cities actually pay $5 to $12 less than married men.
“All drivers in Texas are legally required to purchase an auto insurance policy so it’s particularly troubling that four out of the five companies tested are marking up rates for women for a product that must be purchased,” said Ann Baddour, director of Fair Financial Services at Texas Appleseed.
Insurers defend gender ratings
California is the first state in many years to ban gender as an insurance rating consideration. A handful of other states already had similar regulations on the books (including North Carolina, Pennsylvania, Montana and Michigan), but they were put in place decades ago. Part of the impetus for the change in California was the passage of Proposition 103, which prohibits discriminatory pricing and requires rates to be set based on driving records and experience.
“My priority as Insurance Commissioner is to protect all California consumers, and these 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 said when the regulations were announced.
The American Property Casualty Insurance Association (APCIA) chimed in during the debate over the California rules change, stating that gender ratings are based on hard statistics that show men drive more miles than women, and that teenage male drivers are a higher risk.
“We are concerned that this proposed change would limit carriers’ ability to price the insurance risk accurately, causing some consumers to have to start paying higher rates than they would otherwise,” The APCIA said in a statement.
However, those facts don’t explain the disparities that Texas Appleseed and CFA found regarding older women and divorced or widowed women being charged more than men.
Ironically, California’s new rules will likely increase rates for young female drivers while reducing rates for younger men.