Ontario auto insurers now have a third gender option. How does it affect your rate?

Last spring, the Ontario government began allowing drivers to register for their driver’s license with an “x” in the sex field. The policy was designed to both accommodate and ensure the respectful treatment of trans and non-binary drivers — e.g., drivers who neither identify as male nor female.

In August, the Financial Services Commission of Ontario (FSCO), the government agency that regulates Ontario’s insurance industry, told the province’s auto insurers that they could also begin to offer clients the option of applying for auto insurance with gender “x”. To date, five insurers — we’ve been told by brokers three of them are Aviva Canada, RSA Insurance Group, and Intact Insurance — have taken advantage of FSCO’s offer, filing requests to change their ratings system to accommodate a third gender. FSCO approved them all.

This is encouraging news from a cultural standpoint. When institutions that wield influence on the scale of say, the Ontario government, try to accommodate identities that may not be recognized elsewhere, they are contributing to a bigger effort to ensure respect for marginalized communities in the culture-at-large.

But from an insurance standpoint, the development invites a host of questions for insurers, brokers, and drivers. And these questions all pivot around one central issue: how gender affects a customer’s car insurance rates.

We reached out to Aviva, Intact, and RSA — e.g., insurers that offer the gender “x” option. All three companies declined to comment.

Figuring out the formula

Adam Mitchell, president of insurance brokerage firm Mitchell and Whale, was not surprised. “I don’t think anyone will go on record as an insurance company to tell you how they calculate [their] rates,” he says. “They would all view that as their secret sauce on their calculation.”

Mitchell did have several hypotheses as to how insurers might have incorporated the option into their pricing systems.

“Without any statistical background on it… we could maybe take an educated guess that [insurers have] taken a blended rate of [male and female rates], thinking you might have equal representation of the two,” he says.

Another, more conservative method, he offers, could be defaulting to the more expensive of the two rates — in this case, that of male drivers.

“Either way, it’s a zero sum game,” he says. “If you were to add together all the accidents that men and women had or the history, the gender ‘x’ is going to be encapsulated in that number. There’s no statistical reason to believe that a gender ‘x’ person will be better or worse than the general populace.”

Auto insurers are notoriously secretive about how they calculate rates. Most companies have their own, bespoke formula for determining their customers’ rates, which take into account data that is specific to each individual customer (e.g., their driving history), as well as data about the demographic to which that customer belongs. Gender is one of those demographic categories, but every insurer may attribute a different weight to it.

Car insurers and gender

It is, nonetheless, a major factor. Auto insurers have long given women lower auto insurance rates than they do to men. Insurers generally justify this by citing statistics which say that male drivers tend to get into more accidents than female drivers, and therefore cost more to insure.

Despite its basis in empirical evidence, many critics view this explanation as discriminatory. The European Union Court of Justice banned gender-based pricing in 2011 on all insurance products sold in the E.U. It ruled that the tendency of insurance companies to give female drivers discounts was discriminatory to men. But, its ban ultimately backfired: instead of lowering car insurance rates for men, the ban actually made rates for men shoot higher. That’s because when insurers began to price insurance based on individual driving history and not gender, men were found to have more accidents and tickets than women, leading to higher rates regardless.

Given how much insurers rely on historical data to come up with their rates, the question of how gender “x” fits into existing systems for pricing insurance is basically a question of how insurers introduce new demographics into those systems — particularly when there is little existing data about those demographics to work with. On what basis will insurers determine the rates of drivers who use the gender “x” option? And will their rates be more or less expensive than the rates given to men and women?

The difference is unlikely to be significant

It is reasonable to believe that gender “x” rates will not be significantly different than the current rates of male or female drivers. When FSCO told auto insurers that they could begin offering the option to clients, the regulator directed the insurers that were interested to file for the change using its “simplified filing guideline.” (Every time an insurer wants to change its rates, they have to ask permission from FSCO, which ensures that the changes are fair for both customers and the insurance market-at-large).

This is notable. FSCO only allows insurers to propose changes using its simplified filing guideline if the changes result in a 15% decrease or a 5% increase in one factor or differential; the company's overall average rate, however, cannot be impacted.

In other words, the gender “x” option ultimately won’t be able to deviate too far from existing rates for male and female drivers.

Only time will tell how rates for the demographic will look like in the future. As insurers collect more data about drivers who identify as gender “x”, their rates will adjust to reflect the demographic’s accident rate.

And then, there’s the possibility that gender may stop being a factor altogether in how auto insurers calculate their rates. We’ll just have to wait and see.