There aren’t many products left in the world that can charge based on gender – “pink tax” aside (women often pay more for the “lady’s version” of a standard consumer good). Yet some types of insurance policies are on that small-but-shrinking list. This Women’s History Month, we’re recapping the current state of gender parity in insurance ratings and premiums, along with the newest developments in gender-based insurance pricing regulations.
Like many industries, insurance is currently grappling with its own diversity, equity, and inclusion (DEI) demons. Those in the industry are well aware of its historically white-male-dominated workforce, and much progress has been made to bring more diversity into the fold. While the workforce of the insurance industry is becoming more diverse across age, gender, race, and many other categories, the products it sells don’t always reflect this progress.
Here at AgentSync, we’re committed to DEI within our workforce, and across our partnerships and vendors. We don’t charge our customers different rates based on their gender (as far as we know, gender plays no role in your likelihood to stay in compliance with producer licensing regulations!). But we know some insurance companies still do, given historic data that ties gender to risk. Here’s a look at what’s currently happening and the direction things may be heading when it comes to differences in insurance premium ratings based on gender.
Before the ACA (aka Obamacare), women paid dramatically more than men for health insurance – particularly on the individual market. For women who purchased health insurance plans outside of an employer group plan, the difference in premiums for the same coverage as men was estimated around $1 billion per year in 2012.
Despite charging higher premiums to women, plenty of health plans didn’t even cover the services women need most, including well-woman care, maternity care, and birth control. The ACA changed all this, though it didn’t come without its own legal challenges. Lucky for women in the U.S., the majority of the ACA’s provisions have held up even after a decade of legal battles and attempts at repealing the healthcare reform law. It’s now illegal for health plans sold on the federal and state marketplaces to charge more based on the participant’s gender. Short-term plans not intended to act as major medical coverage can and do still charge significantly more to women.
Historical data show women live longer than men, on average, across all countries and cultures. So it’s only fair that men should pay more for term life insurance if they’re more likely to die during their term and trigger benefits, right? Not so fast…
We understand insurance ratings are based on a lot of data, and intended to keep insurance companies solvent, if not profitable. For permanent (also known as universal or whole) life insurance policies, gender may not play such a large role in ratings because everyone holding this type of policy will eventually die and receive benefits. But for term life insurance, with men more likely to die at a younger age (during the policy term), men have always paid more on average than women of the same age and health classification.
Since women are consistently charged more for items across their life spans, and consistently paid less than their male counterparts for the same work, it might seem like life insurance ratings are one thing women are finally getting a gender-based advantage on. Unfortunately, the cost advantage for women isn’t enough to overcome other systemic barriers that actually result in women being less likely to have life insurance at all, versus men.
These reasons include:
All things considered, women don’t get the benefits of life insurance at the same scale as men, even if they typically pay less in premiums when they do buy it.
It will surprise almost no one to learn that young men under 25 get into more car accidents than women of the same ages. Actuarially speaking, this gives young women an advantage of lower auto insurance premiums simply by the luck of being part of a group with overall lower risk levels.
But the gender-based advantage given to young women in auto insurance rates disappears as the discrepancy lessens around age 25, and even moves more in the favor of men when comparing auto insurance premiums for older people (ages 40 to 60 years according to one study).
Along with gender, geographic location is used to calculate auto insurance premiums. This leads to even larger gender-based rate gaps depending on the location being quoted. Critics of gender rating in auto policies point to the inconsistencies of how gender is factored into auto insurance rates as a reason it should be banned altogether. For instance, a study conducted by the Consumer Federation of America found that being a woman driver in Tampa, Florida, resulted in rates 29 percent higher than those for men, while a quote for the same woman driver in Oklahoma City was priced only 3 percent higher than male counterparts.
Whether it’s dramatic price differences for people of the same age and gender in different states, or inconsistencies between how much men and women are charged by different carriers in the same geography: The bottom line appears to be that gender isn’t a reliable and consistent, unbiased predictor of risk in auto underwriting.
Several states have taken the lead in eliminating gender differences in auto insurance rates: California, Hawaii, Massachusetts, Michigan (with a few exceptions, because there are always exceptions!), Montana, North Carolina, and Pennsylvania. Shout out to Montana for being the first and only state (since 1985!) to ban gender-based insurance rates in any type of insurance in the state. Until 2021, that is (everything old is new again). Delaware may also soon become the newest state to ban gender-based ratings in auto insurance.
If you thought long-term care insurance went the way of the dinosaurs, you’re mostly right. Although it’s a rarity in 2022, a few policies sold by a limited number of carriers still exist. Since the height of its popularity in 2002, long-term care insurance has encountered some obstacles that make it an unattractive and unaffordable prospect for insurers and consumers alike.
Still, with policies on the market, it’s worth mentioning that women are once again faced with higher premiums than men. It hasn’t always been this way. Over the past 10-or-so years, long-term care insurance providers realized they were overspending on women, who are more likely to need long-term care due to both living longer and largely being in relationships with men who will pass away first and not be able to help care for them.
With sound actuarial data to back this up, it doesn’t seem likely that long-term care insurance will move to gender neutral pricing any time soon. Particularly because the product as a whole has become less profitable for carriers, causing many of them to leave the market entirely, long-term care will have a lot of restructuring if carriers continue to provide it at all.
As you can see, there are arguments for gender-based pricing in every direction: Women paying more, women paying less, young women paying less than young men but older women paying more than older men – among numerous other permutations. At the end of the day, equality and nondiscrimination experts argue for simply removing gender from the insurance-rating equation altogether to avoid even the appearance of gender-based discrimination.
While insurance companies have various arguments for using gender as a risk factor that influences ratings, policymakers and consumer advocates prefer that ratings only be based on factors within a consumer’s own control – not their gender or other protected classes. It’s worth mentioning that other protected classes like race and religion are not allowed to be used for insurance ratings.
So what actually happens when you remove gender from the rating calculations? Ironically, prices may not actually be more equitable across men and women, thanks to heavier weight being given to other factors like occupation (many of which are just proxies for gender anyway).
Gender neutrality also doesn’t mean things will swing in women’s favor. Since Montana banned all insurance from using gender in pricing back in 1985, the state has served as a sort of experiment for this practice. The results are that, in the case of auto insurance for example, women can be paying close to 30 percent more for their insurance premiums in Montana than they would in any state where their gender is factored in. One reason for this is because insurance companies fought for (and succeeded in getting) the ability to charge everyone the highest rates, rather than creating new rates that blended the risk for men and women. This prompted Montana’s state legislature to change the law back to allowing gender to be used in auto insurance ratings in 2021. Now, gender along with marital status can be used in insurance ratings in the state and rates are expected to rise for women (including single and widowed) yet again.
In the European Union, a 2012 ruling banned the use of gender in insurance ratings, and insurance companies were up in arms over the unfairness of losing a key piece of historic ratings data. A 2017 news report shows that auto insurance prices for men actually rose sharply after this ruling because, as gender was removed, other data had to be factored in. Now auto insurance rates in the EU are based on occupation, miles driven, type of car, and other factors that are more closely under the control of the consumer than their gender. It just so happens that men are still considered larger actuarial risks than women even without their gender listed.
While insurers and consumers may both benefit from including gender in ratings, under some circumstances, such as when young women reap lower auto insurance rates than young men, one area where eliminating gender-based rates has widespread consumer support is in the realm of health insurance.
The big difference is that health insurance works differently from any other type of insurance product. If, for example, a driver is extremely careful and lucky over the course of her life, she may never have an accident or need to file an auto insurance claim. While unlikely, this is certainly conceivable.
In contrast, using health insurance is unavoidable. Each and every human will get sick or injured at some point during their life, no matter how carefully they live. Another big difference is that using health insurance early and often, in the case of preventive care and diagnostics, can lead to lower costs in the long run. There’s no other type of insurance where using it more frequently can lead to a lower cost later.
Before the enactment of the Affordable Care Act (ACA or Obamacare), women were penalized for using healthcare more often by getting hit with higher premiums. As it turns out, getting regular health care – including being seen before an issue is an emergency – lowers healthcare costs instead of raising them. Thus, in healthcare, eliminating the gender-based pricing differences even if they were based on valid data about women’s use of healthcare turns out to be the right thing to do.
So, in honor of Women’s History Month, we’ll leave you with a few final thoughts. While gender-rating will surely continue to evolve, here are a few things we know for sure: