Since You Asked

There are many ways to price by gender

‘From December 21 . . .  insurers must apply an EU-wide ban on the use of gender to price products, such as motor insurance and annuities.’

Financial Times

He: And not before time. It’s outrageous that I have to pay more for my car insurance than you do. I’m a perfectly safe driver.
She: Of course you are, dear. But you also drive a lot more than I do, which is not unusual for men. Since you drive more miles you are exposing yourself to the risk of more accidents.
He: Am I? Oh.
She: This is one of the reasons that men have more accidents than women. Another, of course, is that some young men are aggressive, overconfident idiots. But in any case you should probably put the money you save into your pension pot because you’re going to need it when you get stuck with the low annuity rates we women have had to put up with.
He: But my life expectancy is shorter. I deserve much higher annuity rates. That’s outrageous.
She: So you’re outraged that discrimination against you hasn’t ended earlier, and equally outraged that discrimination in your favour isn’t going to continue for ever?
He: Hmph. I read Lex when this gender-neutral insurance idea was first floated. Lex said it was “philosophically ignorant”.
She: I hadn’t realised Lex was such a philosopher. But the ruling does raise some interesting questions about the nature of what makes discrimination so objectionable.
He: It does? I mean . . . yes, it does!
She: For example, imagine that black customers were charged more in restaurants. A disgraceful idea, I’m sure you’ll agree.
He: Absolutely. Disgraceful.
She: But why is it disgraceful? Is it because black people are perfectly good restaurant customers and don’t deserve to be charged more?
He: Yes. That’s it.
She: Or is the problem that it’s just wrong to lump people into a category such as “male” or “black”? That people should be treated as individuals rather than defined by their membership of some group?
He: Er, yes – you’ve hit the nail on the head there.
She: Or are we just intellectually lazy, culturally conditioned to break out in a cold sweat if somebody talks about racial discrimination, but complacent about discrimination against men or women?
He: Um, I think . . .
She: Because that brilliant philosopher Lex seemed to think that gender discrimination was fine but racial discrimination was “plainly unfair”.
He: [Opens mouth, shuts it again.]
She: It will be interesting to see what happens to insurance pricing, though.
He: It’s obvious what will happen. Women will pay more for car insurance but men will pay no less; men will get smaller annuities but women won’t benefit.
She: That’s possible, but that would mean corporate profit margins going through the roof. I expect insurers would be keen to grab market share under those circumstances, which will mean premiums falling again. I’d guess that the new gender-neutral pricing will settle near the average of the old rates. That is, until the behavioural response sets in.
He: What behavioural response?
She: It will be a lot cheaper for young men to get car insurance, so expect to see more boy racers on the road. And women may well be more tempted to get their own pensions.
He: But in the end, we’ll all get used to this brave new egalitarian world.
She: We might not get too comfortable. Insurers will start looking at other correlates of risk. The obvious one is how far people drive: men tend to drive more than women. Then there are issues such as the choice of a sports car rather than a people carrier. Such distinctions may carry more weight in determining your premium than they do now. As for annuities, if they can’t pay any attention to your sex they might start paying more attention to your cholesterol.
He: I can see that this might get very intrusive.
She: It might. Or it might get very clumsy. Mortgage lenders used to be accused of using geography as a way of discriminating against minorities in the US, since ethnicity and postcode can be closely correlated. There are modern analogies: since women are on average smaller than men, perhaps in the future premiums will be proportionate to height. Stranger things have happened.

Also published at ft.com.

13th of October, 2012Since You Asked • Comments off