Insurance Costs and Gender

Risk and other factors—occasionally gender—determine premiums.
Premiums are set by insurance companies based on risk and the factors that they are permitted by law to consider. Premiums cannot be set based on an applicant’s race or religion, for example. 1 However, because insurance companies have traditionally linked gender to an applicant’s risk, it is frequently a factor in setting premiums. However, insurers cannot always consider a person’s gender as a factor; it depends on the type of insurance and the individual’s place of residence.

When a person applies for an insurance policy, they want to believe that they are being charged a fair and affordable rate for the coverage they are receiving and that they have some control over the factors used to evaluate them. A brand-new Mercedes that you’ll be driving 15,000 miles per year is a better bet to insure than a 12-year-old Honda that will only be driven 5,000 miles per year because the risk of an accident increases as you drive more, and a more expensive car will be more expensive to repair or replace if you get into an accident.

But not everyone agrees that it’s fair for an insurance company to charge more or less based on a person’s gender. Faced with this question from policymakers and consumer advocates, insurers of all types, not just auto insurers, have been grappling with it for decades.

Here’s how different types of insurance look at gender right now.

KEY TAKEAWAYS

• Whether or not gender can be taken into account in calculating premiums, men and women tend to pay significantly different premiums for various types of insurance.
• Insurance premiums should be determined by factors policyholders can influence, such as their behavior, rather than those they cannot, such as their gender, according to consumer advocates and politicians.
• Insurance companies say that gender is a good way to set premiums based on actuarial data, but some consumer advocates have shown that this is not true.
• When applying for insurance, a transgender or nonbinary person may have to say whether they are a man or a woman, depending on the insurance company, the state where they live, and what their birth certificate or driver’s license says about their gender.

Costs of Life Insurance Based on Gender

When it comes to life expectancy, an individual’s age is the most accurate indicator. After that comes gender. Men usually die before women, and this has been seen in every country since at least 1880. This is mostly because of their genes and hormones. 2 When it comes to life expectancy, women are expected to live about four years longer than men, according to Social Security Administration (SSA) actuarial life tables.

Various health factors are taken into account by life insurance companies when determining whether or not to charge you their best (superpreferred) rate or a higher rate. Some of these factors include blood sugar levels, the use of nicotine, the function of the liver and kidneys, the medications that have been prescribed, and one’s medical history. When it comes to certain health markers, such as blood pressure, cholesterol, and body mass index, life insurance companies may apply different standards of health to male and female applicants. Because of these differences, the rates can be different.

Transgender and nonbinary applicants who are asked to identify as men or women on a life insurance application may experience confusion and anguish due to non-gender inclusive pricing in the majority of states. So far, insurers don’t seem to cover all gender identities for applicants, but based on what we know about the mental and physical health problems of transgender and nonbinary people, they could charge higher rates.

Having a bad reputation as a company that charges higher premiums for poor health outcomes that may have been caused by discrimination could hurt a company’s image and make it less profitable.

Since the end of 2012, European law has made it illegal for insurance companies in European Union (EU) member states to base health, life, and auto insurance rates on a person’s gender. 7 But this isn’t true in most of the U.S., where insurance rules are mostly set by the states. The only state with a law as broad as the EU’s is Montana, and it was passed in 1985.

Gender-neutral pricing rules introduced by the European Union are expected to result in higher premiums for women and lower premiums for men if 50% of a life insurance company’s policyholders are women and 50% are men. But the new rates wouldn’t be the average of the old man and woman rates. Instead, they would be based on how many men and women are in the life insurance company’s portfolio.

The new rates would be changed to reflect the risk of that particular insurer’s clients. If more men than women worked for a company, the premiums would be higher. In either case, women will help pay for men, but at some companies, women will help pay for men more than at others. Also, insurers might need to charge more to make up for the fact that new, lower rates for men could make life insurance more appealing to them and lead this riskier group to buy more. If an insurance company charged everyone the same rate for men, women would probably stop buying from them.

Costs of car insurance based on gender

When figuring out how much car insurance costs, gender is often one of the things that insurers look at. It is common for women to pay less for car insurance than men do because women are statistically more likely to be involved in fewer accidents overall, including fewer accidents involving driving under the influence (DUI) and fewer serious accidents. 1 The difference between what men and women pay in premiums depends on the insurer and their age. Women between the ages of 16 and 24 pay about $500 less per year than men for car insurance. Car insurance premiums for women over the age of 55 tend to be lower than those for men.
Seven states don’t let insurance companies charge different rates based on a person’s gender:

• California
• Hawaii
• Massachusetts
• Michigan
• Montana
• The state of North Carolina
• Pennsylvania

An insurance comparison website called The Zebra discovered that, across all age ranges, the premiums paid by men and women are, for the most part, equivalent. But things are different for younger drivers. Men younger than 20 pay 14% more than women the same age. 12

In the wake of the EU nondiscrimination law passed in 2012, what happened to the cost of car insurance in Europe? There was a significant widening in the gap between the accident rates of male and female drivers in the United Kingdom. Men used to pay £27 more for car insurance than women, but by 2017, they paid £101 more. It looks like other things, like a person’s job, that insurers used to set rates had a big effect.

Insurance for women and other types

As we’ve seen, gender affects insurance premiums either directly or indirectly, whether regulators allow pricing based on gender or not. Here’s a rundown of how gender affects the cost of other kinds of insurance.

Health care coverage

Plans that follow the Affordable Care Act and are sold through state exchanges and the federal marketplace can’t use a person’s gender to set premiums.

14 While short-term health care plans may charge women higher premiums than men, this is not the norm.

Is this difference fair? More than two-thirds of the difference in medical costs between women who are pregnant and those who aren’t is due to the cost of childbirth, according to an issue brief from the National Association of Insurance Commissioners (NAIC), an insurance industry advocacy group. The difference gets smaller with age, and by the mid-50s, men are more expensive users of health care.

When it comes to health insurance policies that are not covered by the Affordable Care Act, such as short-term plans, individual states have the authority to determine how premiums are calculated. A total of 14 states already prohibited health insurers from using gender to set individual market premiums prior to the ACA’s implementation. 17 In Rhode Island, private health insurers are no longer allowed to set premiums based on a person’s gender as of June 2021.

Insurance for Long-Term Care

In 2020, women’s long-term care insurance policies were significantly more expensive than men’s, but this wasn’t always the case. An insurance company called Genworth announced in spring 2013 that it would begin charging different premiums for men and women who purchased individual policies because women received two-thirds of claim payment dollars. Due to their greater longevity and the fact that heterosexual couples are less likely to include a primary caregiver, women are more likely than men to require long-term care services.

States have discretion over how insurers set premiums for plans not covered by the Affordable Care Act (including short-term plans). A total of 14 states already prohibited health insurers from using gender to set individual market premiums prior to the ACA’s implementation. 17 In Rhode Island, private health insurers are no longer allowed to set premiums based on a person’s gender as of June 2021.

Insurance for Long-Term Care

In 2020, women’s long-term care insurance policies were significantly more expensive than men’s, but this wasn’t always the case. An insurance company called Genworth announced in spring 2013 that it would begin charging different premiums for men and women who purchased individual policies because women received two-thirds of claim payment dollars. Due to their greater longevity and the fact that heterosexual couples are less likely to include a primary caregiver, women are more likely than men to require long-term care services.

Because of this, other insurers have adopted the same policy. If you’re 55 and healthy, you’ll pay $1,700 for a year of long-term care insurance for a man, and $2,675 for a woman. Buying a policy as a couple could save you up to $3,050.21 on your premium.

Annuities

Because women live longer than men, they are entitled to lower monthly payments for immediate annuities purchased from insurance companies. The idea is that men and women will on average receive the same amount of money over the course of their lives. However, Social Security does not pay differently to men and women based on gender. Additionally, defined benefit pension plans cannot be used by employers to pay women and men who have made equal contributions different amounts.

Insurance Companies’ Opinions on Gender Rating

The insurance industry, in general, maintains that stricter regulations on gender rating (or any other rating variable) are detrimental to the interests of policyholders and should be avoided. Insurance Information Institute, a consumer education group supported by the insurance industry, released a report in 2019 stating that insurers must adjust their rates to account for the loss of a variable such as gender by increasing or decreasing the weight given to other variables.

According to the report, “imagine that male drivers have higher accident costs and are more likely to use pickup trucks.” The proxy rating variable for gender could be pickup trucks if gender is restricted.” Pickup truck rates may rise while other types of vehicles may fall in this situation.” Higher-risk customers may end up subsidizing lower-risk customers, according to a recent academic study on EU life insurance premiums.

The Conclusion

The insurance industry cannot set rates at such a fine level because individuals would prefer to pay premiums that reflect their choices (not inborn traits) and their unique risk characteristics. Instead, they use rating variables like age and gender to represent risk.

Certain characteristics of individuals, such as those of young men drivers, tend to predict risk for groups of similar individuals, according to insurers. This is true, however, even if young men drivers are safer than some middle-aged women drivers.

24 If consumers don’t find the technology intrusive and if it’s cost-effective for both insurers and consumers, new technology like in-car tracking devices or health monitoring devices could help insurers better assess a person’s risk without relying on broader characteristics like gender.

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