Should gender still be a factor used to set car insurance rates?

Despite the prevalence of sexist jokes about “women drivers,” studies show that it’s actually men who are statistically more likely to get in a collision. And because of the risk men pose on the road, they tend to pay more for car insurance than women.

A LowestRates.ca report from May 2020 found that in Toronto, Montreal, and Calgary, men in all age groups pay slightly more for auto insurance than women. The starkest difference was in downtown Toronto, where men ages 17-19 pay 27% more for car insurance than women in the same age group.

“Men typically pay more for auto insurance because claims data shows that men have a higher likelihood of getting into a collision and oftentimes, these collisions are more severe,” says Anne Marie Thomas, Director, Consumer and Industry Relations, of the Insurance Bureau of Canada.

Insurance companies have long used claims data to price male and female drivers accordingly. But as more people are embracing gender fluidity and non-binary identities, and given that in some provinces, insurance providers don’t or can’t use gender when setting rates, it’s worth asking: could it soon be time to move away from gender-based car insurance pricing?

Why insurance companies consider gender when pricing auto insurance

“Insurance pricing is based on probability of loss — frequency and severity,” says Steven Harris, licensed insurance broker and LowestRates.ca expert. “There is plenty of material, objective data that show an undisputable correlation between gender and claim frequency and severity.”

That said, a number of provinces, like British Columbia, Saskatchewan, and Manitoba, which operate under a public insurance system, do not use gender when determining car insurance prices. Harris says this is, in part, due to the lack of market competition in these provinces.

“Auto insurance in public systems is commonly subsidized through taxes,” he explains. “They don’t have competition so there isn’t a need to innovate creative ways to get more accurate or competitive pricing. There are fewer variables that go into calculating an insurance premium in a public system.”

That said, New Brunswick and Newfoundland are two private auto insurance market exceptions where insurance companies are banned from using gender to set rates. Some provinces have taken this route as they feel it is discriminatory and also not within the control of the insured.

In Alberta, Ontario, and Quebec, however, gender is still used when setting car insurance prices.

Gender maybe “not the best marker” for car insurance rates anymore

When it comes to insurance, “Gender is used as a placeholder that describes a whole bunch of different kinds of behaviour,” says Dr. Sarah Kaplan, director of the Institute for Gender and the Economy at the University of Toronto.

“[Like] the way a younger age is associated with more risk-taking behaviour. But we know that gender is not always the best marker for a lot of things.”

For example, telematics tracking devices that can record a person’s conduct behind the wheel might be a more accurate determinant of a person’s driving abilities rather than their gender.

This can include products like usage-based insurance, which tracks elements like speed, acceleration and braking, or pay-as-you-drive insurance, which bases coverage on the number of miles driven.

The challenge of pricing auto insurance for gender “X” drivers

Another complicating factor is the introduction of gender “X” on drivers’ licences, which ensure that an individual’s government identification remains consistent with their gender identity.

Ontario introduced the gender “X” option in 2017 and other provinces quickly followed suit, with B.C. adopting the change in 2018 and Saskatchewan in 2019. (As of 2019, “X” is now an option on all Canadian identification documents including passports, citizenship certificates and permanent resident cards.)

Saskatchewan General Insurance recently announced, however, that drivers can now leave their sex/gender blank on their licence.

Because there just isn’t sufficient data — at least not yet — on the driving behaviours of non-binary drivers, many insurance companies are opting to charge those who mark this option on their licence the female insurance rate, which is usually the lower one. Others may opt to charge gender “X” drivers the average of the male and female rate.

Could gender-based car insurance pricing become obsolete?

While a distinct win for human rights, gender “X” has introduced a complication for insurance companies that rely on gender-based driving data as a price determinant.

Dr. Kaplan says insurance is a prime example of a sector that would benefit from the concept of gender analytics. “Organizations should apply an intersectional gender-based analysis to all their products and services to ensure they don’t risk embedding unhelpful assumptions into their product design.”

That’s not an overnight fix, of course. As Harris explains, “Part of the reason adoption is slow is because of legacy insurer systems where adding a new variable like gender “X” takes time.”

Could the practice of gender-based insurance pricing in Canada be banned altogether at some point? It’s difficult to say, but it’s not out of the question. Our neighbours to the south are increasingly making the change, with Michigan becoming the seventh U.S. state to ban the practice in 2020.

As for how gender “X” will affect rates in the long term, Harris says insurance companies are always looking for ways to refine their pricing. “As more data is collected, the rating for gender “X” will evolve,” he says.

“If gender continues to be an accurate indicator of claims frequency and severity, it will likely continue to be a rating variable with insurers.”