Why does my sister pay less for car insurance?

In Canada, women generally pay 5% less than men do for car insurance.

Doesn’t seem fair, does it? Seems like insurance companies are judging claims based on gender bias.

Is it discriminatory basing insurance premiums on gender? The European Union obviously thinks so. In 2012, the EU passed laws forbidding insurance companies from using gender bias in establishing insurance rates. Here in Canada, there is a movement in the Maritimes trying to legislate the same thing. In the rest of Canada, there’s really no mention of doing anything anytime soon, but time will see.

So why do men pay more than women for car insurance?

I checked into this. I consulted with insurance reps, did the google research thing, even asked my dad about it (dads know insurance). After extensive research, I was shocked to find out why men pay more for car insurance than women do – it seems that on average men are a greater risk than women are for car insurance. It's that simple. All those old jokes that were made about “women drivers” being so awful was just malarkey! Sorry ladies, we were wrong, you were right!

It’s simple, statistically men are a greater risk for accident (sometimes even resulting in death) than women are. Increased risk is balanced out by higher insurance premiums charged by the company.

Insurers never do anything unless the numbers support it, that’s why they hire actuaries. An actuary’s job is all about risk assessment. They calculate statistical probabilities of events possibly occurring (such as an accident, car crash, traffic fatality, etc.). With that information they advise their bosses on how to reduce the financial risk of covering that person, typically by raising premiums. Insurers never do anything unless the numbers support it. When they pass on the news that men are a bigger risk for them, they offset this risk by hiking up car insurance rates for men.

So why are men statistically on average a bigger risk than women are for car insurance?

As it turns out, there are a few reasons:

• On average, women are slightly better drivers than men are. They tend to drive slower, less aggressively and when they get into accidents tend to have lower claims than their male counterparts.
• Women tend to drive less than men. When a man and woman drive together, for some reason it tends to be the man behind the wheel. Being a passenger rather than a driver means less chance of women being responsible for an accident. Again, a lower probability of accidents means less risk for women therefore lower car insurance premiums.
• Women tend to be more cautious drivers. Anyone who’s watched my neighbor Brenda taking almost half an hour backing her SUV into her parking space knows this. Women are more cautious, have less incidents of “road rage” compared to men, tend not to drive as fast or have dangerous driving habits such as passing cars when they shouldn’t, and typically women are less aggressive than men. These traits all add up to women being a much lower risk for insurers.
• The vehicles that women drive are generally safer than what men drive. Rather than driving a high-performance sportscar, women are more likely to drive more “family-friendly” vehicles such as minivans and 4-door sedans. This is because they’re more likely to have kids with them in their vehicles compared to men. Having kids along for the drive tends to make people drive more cautiously than they would otherwise, thus lower risk.
• Having tickets or auto-related convictions will naturally inflate the cost of your auto insurance. Statistically men tend to be the greater offenders than women, thus pose a higher risk to insurance companies.
• According to Statistics Canada, men have higher car accident related deaths than women do. In 2004, men had 13 deaths per population of 200,000 while women had less than half of that – only 5 deaths per population of 200,000. The severity of claims and payments issued have a huge effect on the risk for covering someone. Being half the risk than a man for accidental car death again means lower premiums for women.

For insurance companies it’s all about risk. Men currently being the higher risk means higher car insurance premiums. That could all change as more women enter the workforce, driving more than they have in the past. Suddenly, women become a bigger risk for insurance companies, who’ll happily offset that risk with higher premiums.

At Baseline, we make it easier for Insurance companies to evaluate risk based on actual driver behavior of the individual rather than discriminate based on gender. This behavior based evaluation leads to much less risk for insurers. Charging someone more (or less) just based on their sex certainly seems like it. If it looks like discrimination, feels like discrimination, smells like discrimination, tastes like discrimination - then it’s usually discrimination (“good thing we didn’t step in it” - Cheech & Chong).

With Baseline and its insurance solutions such as Behaev and Drivn, we enable insurance companies to base their premiums on pertinent and timely information rather than depend on outdated statistics which may not be reflective of the person driving at all. We allow insurers to base their rates on the ACTUAL DRIVING HABITS of the driver. Factors such as distance traveled, how drivers behave behind the wheel, whether drivers speed, when they drive, weather conditions when driving, do they drive recklessly, etc.- how people actually drive - are taken into consideration, rather than on you having “boy” parts or “girl” parts.

Using actual driving behaviors of customers, insurance companies all of a sudden have better information to base their information on. They can better assess risk, customers with good driving habits can be rewarded with lower premiums in return, drivers are incentivized to be better drivers so they get better premiums. Insurers are given better tools for figuring out risk. Drivers are rewarded with lower premiums for better driving habits.

Sounds like a WIN-WIN to me!