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.
7 Comments
julian tysoe says:
“since women are on average smaller than men, perhaps in the future premiums will be proportionate to height.”
But of course, short men are the worst drivers.
Just kidding Napoleon.
13th of October, 2012Neil says:
Ultimately, it seems to me that risk factors which are based on choice (how far you drive, what kind of car you buy, how much fat you eat) are fair, since these are choices that we can change if there’s an economic incentive to do so. We can’t stop being men or black (ultra-rich pop stars excluded), so lumping our “risk factors” based on these elements outside of our control is unfair.
14th of October, 2012Jon says:
Neil – your point is a good one, but behavioral traits often mirror inherited ones. We might not choose our sex, but we do choose to buy lipstick. You are today obliged to tell your insurer if you choose to buy alloys for your car, as that correlates with being a boy racer (presumably). Perhaps in future you’ll have to tell your insurer if you buy shaving foam…
15th of October, 2012Steven says:
My brother once suggested (probably tongue-in-cheek) that discrimination on any factor should be legal if and only if it is profitable. So discriminating against black people in a restaurant generally wouldn’t be allowed (though it might be if most of the locals are white and prefer not to eat with black people) but discriminating based on race or gender in insurance would be allowed, at least unless the insurer has access to some other personal information that predicts risk better than race and gender and isn’t improved by adding race or gender into the risk model.
15th of October, 2012Kieran Madden says:
I’m not sure what miles driven has to do with the price of fish when it comes to whether men should pay more than women for insurance premiums, as most insurance companies ask how many miles you plan to drive that year.
16th of October, 2012So if there is a difference between the sexes in average miles driven, it should be reflected by this figure. I see no need to resort to categorisation or pidgeon-holeing of any sort for this particular measurement of risk.
Vj says:
“She: It will be a lot cheaper for young men to get car insurance, so expect to see more boy racers on the road.”
Tim, if this happens I will buy you a pint next time you’re in Oxford.
17th of October, 2012Stewart says:
Can they not catch boy-racers with a question along the lines of “How old are you?” If it’s illegal to discriminate based on age, they could look instead at how long the license has been held.
18th of October, 2012