States That Prohibit Using Gender and Credit Scores in Setting Auto Insurance Rates – Flux Magazine
Al Woods words
Auto insurance is all about risk. When you purchase an insurance policy, you are essentially paying for the insurance company to assume the risk of an accident or accident. Insurance companies set their premiums based on various risk factors, such as your driving record, where you live, the type and age of car you drive, etc.
But some of these factors are not related to driving behavior or environmental hazards such as natural disasters. Gender and credit scores have long been used as factors when determining insurance rates, but some states now ban the practice.
Photo by Evgeny Chebotarev on Unsplash
Why insurance companies use gender and credit scores
So why have gender and credit score been criteria for insurance rates until now?
When it comes to gender, one reason comes down to statistics – the cornerstone of assessing a claim’s risk. Statistically, women drive less, are less likely to have car accidents, be involved in a DUI, or receive traffic tickets than men. There is statistical evidence that men engage in riskier and more aggressive behaviors on the road, especially when they are younger or in their teens. As a result, women tend to pay less for car insurance than men. This policy has been criticized for sex discrimination – not only is gender equality becoming a larger and more common issue, but the push towards non-binary gender recognition means that state identification documents could soon include a third option for sex. This will force a change in the way insurance companies assess gender-related risks.
Credit scores are used by insurance companies because credit scores are used to assess a person’s likelihood of repaying a loan, credit card payments, or other financial obligations. If your credit rating is low, lenders and insurers may consider you unreliable when it comes to paying your bills. One of the reasons the use of credit scores by insurance companies has been criticized is that some feel it unfairly discriminates against economically disadvantaged people. This is especially true for minorities — people of color have less access to generational wealth and proportionately lower credit scores, pushing them toward subprime lenders who charge far more interest.
Which states have banned the use of sex and credit scores
Here are the states where the use of gender in determining insurance rates is prohibited:
- Montana (which first banned the use of gender information in 1985, but recently reversed the ban in 2021)
- North Carolina
Here are the states where the use of credit score information is prohibited:
The effect of the ban on insurance rates
Does banning gender and credit score information make a difference to insurance rates?
It depends on who you ask. Overall, men pay more for car insurance than women with or without a ban on using gender information. For example, Kristine Lee of The Zebra points out that while the overall gender disparity in premiums is quite small for adult drivers, the difference between teen and female drivers is much larger: teen drivers pay $600 more per year than teenage girls. .
Other studies have shown that in states where the use of gender information is prohibited, men pay about 6% more than women in car insurance premiums. In states where it is not prohibited, this difference is closer to 10%. Anyway, women pay less for car insurance, but there is a definite change in the degree.
To look forward
Will more states ban factors such as gender and credit scores in the future? It seems likely. Insurance companies are beginning to focus more on risk factors that are within the driver’s control, excluding factors such as gender. In addition, the discriminatory nuances of using credit scores as a risk indicator for insurance may lose popularity and be less and less emphasized by insurance companies.
Of course, some criteria are unlikely to change any time soon, even if they have nothing to do with driving behavior. For example, living in an area prone to natural disasters such as floods or tornadoes will always present an increased risk of costly insurance claims. Living in a dense urban area means more risk of vandalism or car theft, not to mention increased traffic and the number of pedestrians and cyclists on the road means a greater likelihood of an accident.
What will most likely happen as gender and credit information becomes less relevant to insurance premiums is that insurers will compensate for this with a more accurate assessment of other risk factors. For example, the use of technologies such as telematics trackers and AI/machine learning will allow insurers to more accurately measure risk based on driving behavior.