For decades auto insurers have been using gender as one of several factors in setting annual premiums. And while the practice has come under occasional scrutiny and criticism it’s largely been an accepted and unimpeded practice.
But gender is no longer a binary, black-and-white issue in 2018, and auto insurers across the nation are grappling with the impact gender fluidity might have on their pricing algorithms — and right now there are more questions than answers.
First, a bit of context.
Why men pay more for auto insurance
Historically, young men pay more, on average, for car insurance than young women (the cost gap quickly narrows after the age of 25 and typically reaches parity by middle age). According to insurance industry officials this has nothing to do with gender discrimination but is rather a byproduct of the data-driven mathematics used to calculate risk.
Decades upon decades of data show that young men are statistically riskier drivers, which means they are more likely to file a claim and are therefore more expensive to insure (hence the higher premium for young men).
But what if you don’t identify as either a man or a woman (meaning you consider yourself non-binary or gender fluid)? Do you have to choose one gender or the other when applying for car insurance? And what does this mean for the bottom line cost of your premium?
These are not hypothetical or abstract quandaries, as several states now allow drivers to choose a non-binary third option on their driver licenses. The only problem is that the insurance industry doesn’t know how to respond to this evolving landscape of gender in the United States.
“This is something that I think a lot of folks in the insurance world saw coming a few years back, but no one thought to take it seriously enough to consider a long term solution,” says independent insurance agent and financial analyst Marissa Ray. “There’s a lot of historic wisdom and a whole lot of data that has been guiding the pricing of auto insurance for decades. But we’re in unchartered territory right now.”
In June, Massachusetts announced that it would allow drivers to choose a third gender (X instead of M or F) on their driver’s license, making it the third state to offer this option.
Just over a year ago, Oregon became the first state to allow “not specified” as a driver’s license gender option. Then, last October, California Governor Jerry Brown signed into law the Gender Recognition Act, giving Golden State drivers a third gender option on their driver’s license and birth certificate, as well as making it much easier for California residents to change their gender identification on official documents.
Additionally, Washington, D.C., also recently began allowing a gender-neutral licensing option for its drivers, and there’s every indication that more and more states will join the ranks of Oregon, California, and Massachusetts very soon in allowing a third gender option for identification documents.
“From a legislative standpoint it makes sense, because more and more people are calling out for a certain degree of gender equality that recognizes gender fluidity and ambiguity,” Ray says. “Unfortunately, the insurance industry is behind the eight ball on this.”
Needing a third gender option
The primary challenge, says Ray, is that as of right now there is no third gender option on auto insurance applications. In states where insurers can use gender as a pricing factor, applicants have the choice of checking on of two boxes: male or female.
“Non-binary or X just isn’t an option,” Ray says. “Which means you’re either forced to check the box that matches your biological sex, which is problematic for non-binary individuals, or you’re forced to essentially lie.”
Oregon has already attempted to alleviate this problem. In April, the state’s Division of Financial Regulation issued a regulatory bulletin requiring all Oregon auto insurers to accommodate drivers who don’t designate male or female on their driver’s licenses. According to the bulletin, all auto insurers who ask applicants to indicate their sex or gender on an application form “must allow the applicant to accurately indicate their official sex or gender designation on file with the DMV.”
What’s more, the bulletin states that “insurers that use sex as part of their rating plans must file rates for individuals who indicate their sex as not-specified.” Insurers must comply with the new regulations by early 2019. Failure to do so will designate the insurer as being in violation of the Oregon Insurance Code for unfair discrimination. Right now Oregon is the only state to put forth this type of governmental solution.
“This is actually a pretty good start,” says LGBTQ consumer advocate Molly Singleton. “This not only means insurers have to give their customers a third ‘gender’ option, but also that auto insurers in Oregon now have to show data supporting the rates they’ll be giving to non-binary drivers.”
Consumer advocates worry about discrimination
The larger issue at play, Singleton says, is the use of any gender identity in determining auto insurance premiums, which in and of itself has historically been a sticky matter for consumer advocates who say the practice is discriminatory even within the context of binary male-female options (certain states, including North Carolina, Massachusetts, and Hawaii actually ban the use of gender or sex in determining premiums).
“Rather than try to figure out how to fit non-binary into insurance pricing models, I think this should open up the conversation about why we use gender at all in auto insurance pricing,” says Singleton. “Sure, the insurance companies will tell you that the data backs it up — that men are riskier drivers than women—but they can’t necessarily tell you why. If data showed that red heads are riskier drivers than blondes or brunettes, would it be fair to charge redheaded people more for car insurance? Of course not! That would never fly. But this gender thing is something we just accept as a fact of life and that’s that. Hopefully this will start to change.”
Just how many drivers will be impacted by these latest developments is unclear because research and data on transgender and non-binary gender identities is severely limited right now. That being said, most of the literature currently available estimates that non-binary individuals comprise between 25 and 35 percent of the larger transgender population (according to a 2016 survey conducted by the Williams Institute, about 1.4 million adults in the U.S. identify as transgender).
This quandary is not without precedent. In early 2017 Ontario became the first Canadian province to offer an X gender option on driver’s licenses. Shortly thereafter almost every major auto insurer in the province also voluntarily added an X option on policy applications. Whether U.S. insurers take a similar approach remains to be seen.
“Gender rights and gender equality are going through some rapid and necessary changes right now, and there’s simply no way that the insurance industry can keep its head in the sand much longer,” Singleton says. “Hopefully this is going to bring about some difficult but important conversations.”