Insurance companies base premiums on risk and other factors that are permitted by law. It is illegal for insurers to base premiums on an applicant’s race or religion, for instance.
However, since gender has historically been linked to a factor’s risk by insurance companies, it has frequently been taken into account when determining premiums. However, depending on the specific type of insurance and the individual’s location, insurers cannot always take gender into account.
When a person applies for insurance, they want to feel that the price they pay is reasonable and fair for the coverage they receive and that they have some influence over the criteria used to evaluate them. Charged that the risk of an accident increases with mileage and that a more expensive car will cost more to repair or replace, it makes sense to pay more for insurance on a brand-new Mercedes that you plan to drive 15,000 miles per year as opposed to a 12-year-old Honda.
However, not everyone agrees that a person’s gender should determine whether an insurer charges more or less. Insurance insurers of all types, not just auto insurers, have been addressing this issue for decades in response to policymakers and consumer advocates.
Here is how gender is currently considered into account for various insurance types.
KEY LESSONS
- Whether or not regulations permit gender to be taken into account when determining premiums, men and women typically pay different rates for all types of insurance.
- People, consumer advocates, and politicians prefer that insurance premiums are determined by variables that policyholders can control, like their behavior, as opposed to variables they cannot, like their gender.
- Insurance companies assert that using a person’s gender as a factor in determining premiums is an actuarially sound practice, but some consumer advocates have provided evidence to the contrary.
- According to the insurance company, the applicant’s state of residence, and the gender identifier on their birth certificate or driver’s license, a transgender or nonbinary person may be required to identify as either a man or a woman when applying for insurance.
- Gender and the Price of Life Insurance
- The age of a person is generally thought to be the best indicator of how long they will live. The second factor is gender. Men typically die earlier than women for reasons primarily related to genetics and hormones, according to observations in every country going back at least to 1880.
A woman who was 40 in 2019 was anticipated to live about four years longer than a man who was 40, according to Social Security Administration (SSA) actuarial life tables.
When deciding whether to charge you their best (super-preferred) rate or a higher rate, life insurance companies decide a wide range of health factors. Blood sugar levels, nicotine use, liver and kidney function, use of prescription drugs, and medical history are a few of these factors. However, when it comes to specific health indicators like blood pressure, cholesterol, and body mass index, life insurance companies sometimes have different standards of health for male and female applicants. Different premiums may result from these variations.
For transgender and nonbinary applicants who are asked to identify as men or women on an application, non-gender inclusive life insurance pricing in most states can cause confusion and agony. Insurers might legitimately charge higher rates based on what is known about the mental and physical health challenges faced by transgender and nonbinary individuals, even though they do not currently appear to offer coverage for all gender identities to applicants.
Of course, having a reputation for charging higher premiums for subpar health outcomes that may have been brought on by discrimination may not be good for a business’s image and may even hurt its bottom line.
Since the end of 2012, European law has made it illegal for insurers in member states of the European Union (EU) to base health, life, and auto insurance premiums on a person’s gender. But in the majority of the United States, where insurance is largely governed at the state level, this isn’t the case. The only state with a law as comprehensive as the EU’s is Montana, and it was passed in 1985.
According to an academic study examining the effects of Europe’s new gender-neutral pricing regulations, if women made up 50% of a life insurance company’s policyholders and men made up 50%, the law would result in women paying higher rates and men paying lower rates. The new rates, however, would actually depend on the ratio of men to women in the portfolio of the life insurance company rather than being the average of the old man and woman rates.
Given its clientele, the new rates would be changed to reflect the risk faced by that particular insurer. With more men than women as customers, premiums would be higher at companies. In both scenarios, women will pay for the men, but at some businesses than others, women will pay for the men more. A premium increase may also be necessary to cover the possibility that men may purchase more life insurance as a result of the new, lower rates for men, who are a riskier demographic. If an insurer only charged men’s rates, they would probably lose women’s rate.
Gender and the Price of Auto Insurance
One of the many factors that insurers consider when setting auto insurance rates is gender. Women frequently pay less for insurance than men because they experience fewer serious accidents, driving under the influence (DUI) collisions, and general collisions.Depending on the insurer and the customer’s age, men and women pay different premiums. In comparison to men, women between the ages of 16 and 24 pay about $500 less annually for auto insurance. Women over the age of 55 typically pay less for auto insurance than men do.
In the following seven states, insurers are prohibited from basing premiums on gender:
- California
- Hawaii
- Massachusetts
- Michigan
- Montana
- N. Carolina
- Pennsylvania
According to The Zebra, a website that compares insurance rates, men and women pay roughly the same across all age groups. The situation is different for younger drivers, though. Men under the age of 20 are 14 percent more expensive than women in the same age range.
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And what happened to auto insurance rates in the EU after the anti-discrimination law was passed in 2012? Driving rates differed significantly between men and women in Britain. For a car insurance policy, men used to pay £27 more than women; by 2017, they were paying £101 more. It appears that other factors, like occupation, that insurers used to determine premiums had a significant impact.
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Gender and Additional Insurance Types
As we’ve seen, whether regulators permit gender-based pricing or not, gender has an impact on insurance premiums either directly or indirectly. The impact of gender on the premiums of various insurance types is outlined below.
Gender cannot be a factor in determining premiums for health insurance plans that are in compliance with the Affordable Care Act and are offered through state exchanges and the federal marketplace.
However, premiums for short-term health insurance plans can and frequently are significantly higher for women than for men.
Is this difference legitimate? Medical costs during childbearing years are more than 45% higher than those for people who cannot have children at the same age, and the difference can be as much as 270 percent, including birthing costs, according to an NAIC issue brief, an industry advocacy group for the insurance sector. Men start to use healthcare more expensively by their mid-50s, though the difference lessens with age.
States have the authority to decide the premium-setting premiums of insurers for non-ACA plans, including short-term plans. Before the ACA, health insurers were already prohibited from using gender when determining individual market health insurance premiums in 14 states.
Rhode Island has passed legislation that forbids private health insurers from using gender as a factor in determining premiums as of June 2021.
A long-term care insurance
In 2020, women paid significantly more for individual long-term care (LTC) insurance policies than men did, but this wasn’t always the case. In the spring of 2013, Genworth, a significant long-term care insurance provider, announced it would begin charging different premiums to men and women who purchase individual policies (in states that permit the practice) because women were receiving two-thirds of claim payment dollars. In heterosexual relationships, women are less likely to have a spouse who will take care of them in old age, making them more likely than men to require professional long-term care. Women also live longer than men.
Other insurers have adopted this change since Genworth made it. In 2020, a 55-year-old man with a standard health rating would pay an average long-term care insurance premium of $1,700; a woman would pay $2,675. A man and woman purchasing policy jointly might receive a combined rate of $3,050.
Annuities
Women’s longer life expectancies result in lower monthly payouts than men’s for immediate annuities bought from insurance companies. Men and women are expected to receive roughly average lifetime payouts overall. However, Social Security does not pay out differently for men and women based on gender. Furthermore, employers cannot pay women and men who have made equal contributions to defined benefit pension plans at different rates.
The Insurance Sector’s Views on Gender Rating
In general, the insurance sector argues that stricter regulations on gender rating (or any other rating variable) are bad for consumers. According to a 2019 report from the Insurance Information Institute, a consumer education organization supported by the insurance industry, since insurers are required to base rates on variables created through statistical analysis and approved by regulators, they must compensate for the loss of a variable like gender by increasing or decreasing the weight of other variables.
According to the study, men are more likely to drive pickup trucks and have higher accident costs. “Pickup trucks may serve as the proxy rating variable for gender if gender is restricted. Pickup truck rates may rise in this scenario, while rates for other vehicle types may fall. Another outcome that could occur is that lower-risk customers may end up paying for higher-risk customers, as was noted in the academic study about EU life insurance premiums.
the conclusion
It is not practical for the insurance industry to set rates at such a fine level, despite the fact that some individuals might prefer to pay premiums that reflect their choices (rather than inborn traits) and their specific risk characteristics. As a result, they substitute rating variables like age and gender as a stand-in for risk.
Insurance insurers assert that, despite the fact that some young men drivers are actually safer than some middle-aged women drivers, certain characteristics tend to predict risk for groups of similar men, such as young male drivers.
If consumers don’t find the technology to be too intrusive and if it is cost-effective for both insurers and consumers, new technology, such as in-car tracking devices or health-monitoring devices, could allow insurers to more accurately evaluate a person’s risk without using broader characteristics, such as gender.
