The impact of gender on insurance premiums

Insurance premiums are a critical aspect of financial planning for individuals and families. However, one often overlooked factor influencing these costs is gender. Historically, insurance companies have used gender as a criterion to assess risk, leading to different premiums for men and women. This article explores the various ways gender impacts insurance costs across different types of policies, highlighting the ongoing debate and regulatory landscape surrounding this practice.

Auto Insurance

Auto insurance is one of the most common types of insurance where gender plays a significant role. Generally, men, especially young men, pay higher premiums than women. This discrepancy is largely due to statistical data showing that men are more likely to be involved in accidents, drive more miles, and engage in riskier driving behaviors such as speeding and driving under the influence (DUI).

Statistical Evidence

According to the National Highway Traffic Safety Administration, young male drivers are nearly twice as likely to be involved in fatal car accidents compared to their female counterparts. This higher risk translates into higher premiums. For example, a 16-year-old male driver might pay $7,188 annually for car insurance, while a female of the same age might pay $6,408.

State Regulations

Several states in the U.S. have prohibited the use of gender as a factor in determining auto insurance premiums. These states include California, Hawaii, Massachusetts, Michigan, Montana, North Carolina, and Pennsylvania. In these states, insurers must rely on other factors such as driving history, location, and type of vehicle to set premiums.

Impact of Gender-Neutral Policies

The European Union implemented a gender-neutral pricing policy in 2012. Following this change, the gap between premiums for men and women widened, with men paying significantly more. This suggests that other factors, such as occupation, became more influential in setting premiums.

Life Insurance

Life insurance premiums are another area where gender differences are evident. Typically, women pay lower premiums than men because they have a longer life expectancy. Actuarial data shows that women live approximately six years longer than men, which means they pay premiums for a longer period, reducing the risk for insurers.

Health Factors

Life insurance companies consider various health factors, including blood pressure, cholesterol levels, and body mass index (BMI). Interestingly, these factors are sometimes evaluated differently for men and women, leading to different premium rates even when other health indicators are similar.

Transgender and Nonbinary Applicants

The current life insurance application process can be challenging for transgender and nonbinary individuals, who may be required to identify as male or female. This can lead to confusion and potentially higher premiums due to the lack of inclusive policies.

Health Insurance

Health insurance premiums also exhibit gender-based differences. Women generally pay higher premiums than men, particularly during their childbearing years. This is because women are more likely to visit doctors, take prescriptions, and require maternity care, all of which increase healthcare costs.

Affordable Care Act (ACA) Impact

The ACA prohibits gender-based pricing for health insurance plans sold through state exchanges and the federal marketplace. However, short-term health insurance plans, which are not ACA-compliant, can still charge women higher premiums.

State-Specific Regulations

Before the ACA, 14 states had already banned the use of gender in setting health insurance premiums. As of June 2021, Rhode Island also prohibited private health insurers from using gender as a factor in setting premiums.

Long-Term Care Insurance

Long-term care (LTC) insurance premiums are generally higher for women than for men. Women are more likely to need long-term care services because they live longer and are less likely to have a spousal caregiver in old age. As a result, women receive two-thirds of claim payment dollars, leading insurers to charge them higher premiums.

Annuities

Annuities provide another example of gender-based pricing. Women receive lower monthly payouts than men for immediate annuities because they have longer life expectancies. The idea is that over a lifetime, men and women will receive the same total payout, on average.

Industry Perspective

The insurance industry argues that using gender as a rating variable is actuarially sound and helps set premiums that accurately reflect risk. Removing gender as a factor could lead to higher premiums for some groups and lower premiums for others, potentially causing low-risk customers to subsidize high-risk customers.

Technological Advancements

New technologies, such as in-car tracking devices and health-monitoring devices, offer the potential to assess individual risk more accurately. These technologies could reduce the reliance on broader characteristics like gender, but they also raise concerns about privacy and cost-effectiveness.

Gender has long been a factor in setting insurance premiums, but this practice is increasingly coming under scrutiny. Regulatory changes, both in the U.S. and internationally, are pushing insurers to find new ways to assess risk without relying on gender. As technology advances, it may become possible to evaluate individual risk more accurately, leading to fairer and more personalized insurance premiums.