Auto Insurance discrimination

Great Debates
1

In this time of affirmative action and women’s rights, many great strides have been made to attempt to dissolve the differences between the people of the United States, but there is one glaring example of discrimination that still exists…age discrimination in auto insurance.

Based off a drivers age, a driver under 25 is charged more for insurance than a driver over 25 even if they have the same number of speeding tickets and were involved in the same number of accidents. Why is this type of discrimination any different than racial or gender-based discrimination?

I have written to many people about this issue and almost all of them responded with one of two responses:

  1. There is no law forbidding discrimination by age. I find it hard to believe that any good American citizen would actually accept this as a reason to be discriminated against. What if the slaves were told that they had to remain slaves because there was no law against slavery? Or if women could never vote? The constitution of the Unites States is not a static, unchanging set of laws. Look back through history and see all the amendments and additions that have changed the constitution throughout the years. Just because something is not against the law does not mean that it is the correct and most just way to do things.

  2. Insurance rates are based of off actuarial statistics. This answer itself admits that the insurance rates are discriminatory. According to the Merriam Webster dictionary to discriminate is “to make a difference in treatment or favor on a basis other than individual merit.” Using statistics to determine rates is anything but individual merit! Furthermore, insurance companies could very easily compile “actuarial statistics” to show which gender or race got into more accidents, but if they tried to base the rates off of these statistics it would not sit too well with the American public.

The technology exists today to have every accident and speeding ticket sent directly into a national database that could be accessed by all insurance companies. That is why I propose that insurance rates be based strictly off of driving record and the age and type of car you own…these are the only two factors that are based in fact, and not generalized statistics. If the insurance companies’ statistics are accurate people under 25 will still pay higher insurance because they will be involved in more accidents, and the same would apply to people that live in “high risk” cities, at least everyone would start on a level playing field. What do you think?

2

The age discrmination is worse than you think. Older drivers (over age 70) are nearly has dangerous as all but the youngest drivers (age 16 & 17…age 18 and up are safer).

IIRC insurance rates do not reflect this. Teenagers don’t vote…senior citizens do not to mention the very powerful lobbying the AARP can bring to bear.

3

I don’t think technology is an issue here - the insurance companies already track the driving records. What you have to consider is that relatively few people get into accidents. If this were not so, your rates would be a lot higher than they actually are. The point of pricing insurance by categories is to predict the likelihood of a person who has not gotten into an accident yet of doing so. (The principle of insurance is to spread the cost of the accident among the many people who have not been involved in it - if we were to make only those who actually were involved in accidents pay the increased cost, we would no longer be insuring - in effect people would be paying the cost of their own accidents).

This same principle is also used for pricing life insurance. Do you object to this as well, or do you propose making the rates for a 60 year old be the same as for a 20 year old?

I would also note that the insurance companies don’t care if they price by age or not - as long as everyone else prices the same way. One insurance company that decided to offer rates that didn’t vary by age would be swamped by younger drivers, deserted by older ones, and immediately go out of business.

4

Insurance companies are never allowed to discriminate against race. They are allowed to discriminate by sex or age if there are actuarial statistics that give good reason for the difference in rates. They are not allowed to refuse insurance coverage for these reasons, but they can charge a different premium. There are many valid reasons for this. By charging higher premiums to more at risk drivers, it allows them to charge lower premiums for low risk drivers. It seems pretty fair to me.

Hijack: How does affirmative action “dissolve the differences between the people of the United States”? I am not arguing whether it is good or not, but it clearly perpetuates the differences between people.

5

Izzy, the life insurance argument comes up a lot when I have this discussion, but I do not see the relevance of it. Age has nothing to do with driving ability, but it has a whole lot to do with death. It is a biological fact that older people are going to die before younger people. Sure, there are exceptions, but for the most part older people die first, which is why life insurance premiums are set the way they are. However, a majority of drivers under 25 will not be in an accident before they are over 25. Once again there are exceptions, and that is why the exceptions should be charged higher rates, just like a smoker is charged more for life insurance because it is a proven cause of death. Age is not a proven cause of accidents and neither are race, or gender, but the latter two categories are not discriminated against.
TexasSpur, I understand your point, but my anticipation would be that everyone’s rates would go up slightly to cover for the lower rates of the younger drivers, but it still seems more fair because everyone would start on a level playing field…it would just be slightly higher, but what’s a few dollars when you are talking about the civil rights of an American citizen?? I will be 25 in about 5 months, but I would still like to see this system changed. The insurance companies in the United States are far too powerful and it would be nice to see the people take action to change there system…just to let them know that we still rule this country.

6

horhay_achoa

There are plenty of things that don’t on the surface appear to affect a person’s driving, but statistically they do. The fact is, young males drive recklessly compared to non-young males. The reasons behind this may be societal, but the phenomenon exists. I think that charging different rates for youth is similar to charging different rates for single vs. married. There are no biological reasons why a married person should be charged a lower rate than a single person, but they are.

7

Age has a lot to do with driving ability. The leading cause of death among teenagers (15-20) is a car crash. FWIW two out of three of those killed are male. That age group makes up 6.7% of the population but account for 14% of all accidents. (Source: http://www.caraccident.com/law_library/stats_teen_driving.html )

The word ‘cause’ may not be appropriate because being 17 does not, in and of itself, make you a dangerous driver. Likewise, being 72 does not make you a dead man. These are all statistical analysis that fall apart on the micro level but work in the macro.

Insurance is merely a game of tranferring risk and spreading it around. Chances are you won’t have your house burn down but most people keep insurance for it just the same. An insurance company looks at the relative risk involved when insuring people and charges accordingly. I can probably get hurricane insurance dirt cheap here in Chicago yet merely by virtue of location those in Florida can expect to pay a fortune for hurricane insurance.

This is all ok and as it should be. If you are in a more dangerous group for whatever you want insured then I see nothing wrong with having you pay more for that.

Like I said before I think the real issue here is that older drivers get treated much better than youger drivers even though their accident statistics are nearly as bad as those of teenage drivers. If pricing is based on actuarial tables then stick to it. If old people are more dangerous on the road then charge them for it. This, to me, is a clear case of age bias.

8

Why not allow discrimination based on race, then? If the statistics were to show that black men are twice as likely to have an accident as white men, wouldn’t it be just as legitimate to charge blacks more as it currently is to charge younger drivers more?

9

The laws governing insurance are written by the people who brought you insurance in the first place. Let’s back off and look at the overall picture a moment:

Insurance is a form of gambling in which the house gambles that some type of bad thing will not happen to you (at least not often or soon), and you gamble that it will (or fairly often, or soon).

Under many circumstances, the house is allowed to change the odds if you start to win, especially if your participation as gambler has been made virtually unavoidable, so they raise the ante and you continue to ante up as punishment for having raked in a little pile.

This is particularly the case when part of the bad things the house is betting will not happen to you consists of people suing you for bad things that happened to them for which you should be held responsible. These lawsuits usually cost the house a lot of money, for which reason you tend to pay a high ante to sit at the table where they’ve made sure you have very little choice about sitting.

Lawsuits are an activity pursued by the same people who create insurance. Laws governing liability and protecting victims could be and could have been crafted in such a way as to provide community protection to victims while obtaining the wherewithal for that protection only from people whose negligence was genuinely callous or who victimized intentionally, and if they had been crafted in that manner, the overall costs would be lower and the costs to companies insuring individuals substantially lower, but then the fees for those who pursue lawsuits would be lower, and the insurance companies don’t mind passing along the cost collectively to those they insure, so that isn’t how it’s done. So everyone at the gambling table pays a huge surcharge against the possibility of someone hitting the jackpot.

Meanwhile, in addition to raising your ante if you yourself have an insured-against bad thing happen to you and thus cost the house some chips, the house has deemed it reasonable to raise your ante if you are in a broad category of people to whom the insured-against bad things happen (or happen soon, or often), which again protects them from the odds of you removing more chips from the table than you put down for the privilege of playing.

I would certainly consider it discriminatory, but as I said, the laws governing insurance are written by the people who brought you insurance in the first place.

Oh yeah, they are also the folks who would be in charge of ruling on whether or not such practices are discriminatory, should you seek to bring it to their attention.

10

It is specifically illegal to discriminate by race for insurance.

11

Insurance actuary weighing in. december is another one - with any luck, he’ll be along sooner or later.

I’m sorry if you don’t like it horhay, but the simple fact is that according to the vast amounts of data we have, insuring a young person is more expensive than insuring an older person. Insurance companies have to charge premiums that won’t give them a loss. However, cross-subsidies do actually already exist. Believe it or not, young people generally should actually cost even more than they are currently being charged!

In insurance terms, it is important to separate risk factors from rating factors. Risk factors are direct indicators of the level of risk. Rating factors are what we use as proxies when risk factors are impractical.

So what are the risk factors for car insurance? Here’s a nice list:

[li]ability of driver[/li][li]ability of other drivers on road[/li][li]number of miles driven[/li][li]location car is driven[/li][li]when car is driven (rush hour, daytime, night)[/li][li]speed car is driven[/li][li]cost of replacing or repairing car[/li][li]susceptibility of car to theft[/li][li]type of cover[/li][li]where car is kept (eg garage)[/li]
Clearly most of these risk factors are subjective or even impossible to ascertain directly. This is why we need rating factors. It has been found that the following objective factors give a good indicator of risk and are reasonably independent of eachother:

[li]cover (i.e. third party, comprehensive)[/li][li]type of use (i.e. business/social only/commuting)[/li][li]driver’s age (more of this later as it is the topic)[/li][li]make and model of car (or groups that contain similar risk)[/li][li]age of vehicle (new cars tend to do more miles and are repaired more often)[/li][li]past experience (i.e. a no claims discount or bonus malus)[/li][li]location (as a proxy for where car may be driven)[/li]
These 7 factors, as I said, have been found to be a reasonable indicator of risk. Note that gender and race are not amongst them. As insurers are always seeking the edge though, the following have been used also:

often used
[li]other drivers (if car is driven by spouse)[/li][li]further data on driver (driving convictions, driving experience)[/li][li]further data on car (engine modifications)[/li][li]voluntary excess (willingness to have a higher excess may indicate a more cautious driver)[/li]
sometimes cautiously used
[li]sex (women tend to do less miles than men)[/li][li]low milage (collectors who use cars in limited fashion)[/li][li]occupation (some professions attract careful risk-averse people)[/li]
To repeat - insurers are always looking for an edge over competitors. If they found that race played a part, you can bet on it that they’d be clamouring to introduce race as a rating factor. But the data simply isn’t there to support it. Location yes. Occupation quite possibly. Age certainly. Gender possibly (and sometimes it is used). Race no.

Furthermore (and this really is critical) race cannot be objectively defined. Very important this. To be a rating factor, information needs to be objective and verifiable. How do you decide on “race”? “Oh yes - he’s the colour of… Starbucks mocha with 10ml milk. We’ll give him a 7 on the race scale”.

As for age - well young drivers: [ul][li]tend to drive faster meaning that they are more likely to have accidents and (more importantly, perhaps) the accidents they have tend to lead to higher claims[/li][li]tend to do more miles than old drivers.[/li][li]are much more likely to drive at night.[/li][li]are more likely to drive in densely packed urban locations.[/ul]These are all linked to the risk factors. Like it or not, age is a particularly good risk factor.[/li]
But most importantly the data overwhelmingly shows that young drivers cost more to insure. The actual reasons at the end of the day are irrelevent really. If you ban insurers for charging an appropriate price for younger drivers then the only sensible thing for insurers to do is refuse to insure young drivers. Because otherwise they will lose money.

You wouldn’t insist that widget X is sold for less than the price it cost to produce. And if widget X has higher quality and cost more to produce than widget Y you wouldn’t insist that X be priced the same as Y. Well in the same way, you can’t compare insurance for older and younger people.

Anyway - we all get older in the end. You’ll be the one taking advantage of cheaper rates in a few years time.

pan

12

Many years ago (I think it was the '50s or '60s, before I was born) my father had his auto insurance cancelled. He called his agent to find out why, since he hadn’t had any tickets, had been in no accidents, and he always paid his bill on time. He was told they did it BECAUSE he had not had an accident in a long time, and their statistics showed that he was due for one any time now.

My Dad got insurance with another company, and less than a month later was in an accident.

13

TexasSpur:

I’m aware of that. Obviously someone thinks it’s wrong to discriminate based on race, but even though age and sex are just as uncontrollable, it’s not illegal to have different rates for men and women. Aside from the current state of the law, what’s the difference between race and sex here?

14

Just a few other comments.
According to the Bureau of Justice website 28% of Black males will enter Federal or State prison, compared to 16% of Hispanics, and 4.4% of whites. I would say that these numbers have more to due with problems in society than the actual race of the people involved, but non the less statistically a Black man is more likely to commit a crime than a Hispanic or White man…does this mean we should charge all black people more for guns? I can guarantee that if a gun storeowner tried to that BASED ON STATISTICS, the black population would go up in arms about it…no pun intended. I realize that this is not insurance, but it IS discrimination based on race, which is illegal, but isn’t discrimination based on age just as bad? I think people have just accepted age discrimination because it is easy to discriminate against young people…they dont have the money or life experience to fight back.
And, if age is a legitimate factor in determining auto insurance rates, why dont the rates go back up as drivers enter their twilight years? My grandfather was just in an accident while sitting at a red light because his foot slipped of the break on to the gas and he couldnt get his foot back on the break in time to stop before hitting a house…now that seems dangerous.
One last thing, and I mentioned it earlier. If insurance companies did decide not to discriminate by age anymore I think that they would raise everyone’s rates to cover for the losses that you mentioned for insuring younger drivers, but atleast it would be a level playing field for EVEYone at the beginning, and you would get a chance to determine your own rate by driving carefully.

15

I agree that age discrimination in auto insurance rates is troubling.

But consider that race discrimination in insurance rates is more invidious.

Why is that? Well, most people get a chance to move from age group to age group.

By contrast, you’re stuck with whatever race you were born as.

16

kabbes:

Just out of curiosity (since you are likely to know) why do older drivers (over 65 or 70) get lower auto insurance rates than young driver (16 - 20) when statistics seem to show they are just as dangerous drivers (maybe more so depending on how you slice the numbers)? You probably have better stats than I do but if you wish me to dig up some cites I will. (There is one link in my first post in this thread but I’ll get more if you wish.)

17

Whack-a-Mole - you have to go back up to my original 11 risk factors. Old drivers may well have less driving ability. They may have more accidents per mile travelled for a road of given traffic density and conditions. But the fact is that really old drivers:[ul][li]tend to drive less fast, reducing the severity of any resulting claim (a big deal. Insurers are really scared of bodily injury and multiple claims from things like car pile-ups.)[/li][li]carry less passengers (passengers further increase possible liability[/li][li]tend to do far less miles per year than younger drivers. The number of miles driven per year really is arguably the most important risk factor.[/li][li]tend not to drive at night, when conditions are particularly poor and dangerous drivers are more likely to be in evidence on the road.[/li][li]tend to drive less in very dense commuter traffic, where a large number of incidents take place.[/ul]You’ll find that the average amount claimed per year by an older driver is a lot lower than you’d expect, given their possible inherent worse skill at driving. On that note, if we were able to calculate premium per mile I bet you’d find they end up paying a lot more than you do.[/li]
Saying that, older (70+) drivers often do actually get charged a higher amount than younger (25-70yo) drivers. If you’re younger than 25 though and especially if you’re male the simple fact is that your claim frequency and claim severity are very high. Sorry, but that’s just the way the numbers are.

Incidentally, I notice that Mr2001, horhay and lucwarm seem to have ignored the entirity of my post. Or at least I presume so, since they ask questions already addressed. I wonder why that is? Perhaps because it actually answers their questions.

In particular they seemed to have missed the most important point so I’ll say it again: there is no objective data criteria for race. Objectively speaking, there is no such thing as “black”, “white”, “yellow” or “green”. Go ask collounsbury for the scientific facts if you don’t believe me (actually don’t 'cos I think he’s a bit fed up of making this point).

If you put down “race” on your proposal form and the person you consider black puts “white”, then what are you going to do about it? “Prove” that they are black? How? How “black” do they have to be before they are black? I remind you that genetically speaking, there is no discernable difference between so-called “black” and “white” people. The difference is purely subjective. That’s a BIG no-no when it comes to this kind of insurance pricing.

Racial criteria can never be more than a hypothetical argument in this debate because it could never actually be used.

Insurers are interested in objective statistical correlations. Age fits the bill. Race does not. End of story as far as that comparison goes.

Mr2001 - this also goes for race vs sex. I hoped that I’d made that clear in my last post.

And horhay - as I already said, they wouldn’t just raise their rates for everyone. They’d stop insuring young people. Because if they didn’t, another insurer would. This means that the second insurer could afford to charge a lower rate to anyone over the age of 25 than the first insurer could. Everyone over the age of 25 would then go to the second insurer. The first insurer would be left with those under the age of 25 who’s risks would then be underpriced since you’ve averaged the cost, so the first insurer would make a big loss.

You’re asking for something for nothing here. When it comes to insurance, you’re paying for a service. You’re already actually getting it at slightly less than cost price. Seems like a bloody good deal to me.

Actually my view is that if “age discrimination” was banned, the older people would be the ones being discriminated against. They would be paying far more than is justifiable for their insurance whilst younger people would be getting it dirt-cheap. Older people would be subsidising younger people. Now that, to me, is true injustice. Why should they pay for the extra cost of your insurance? That is true discrimination.

pan

18

OK. Lets forget about race. You say that gender is a legitimate way to determine insurance rates? I find that very hard to believe, and if it is true the women’s movement is taking it up the butt on that one. Why haven’t they done anything about?
Kabbes- It is against the law to drive a car without insurance, so how could an insurance company just decide not to insure younger drivers? And if one did, then according to you, all of them would drop under 25 drivers or else go out of business. If all insurance companies drop under 25 drivers then no one would technically be able to drive a car until they were 25…thats not gonna happen.

19

Well, I remember shopping for auto insurance in Texas and being told by one agent that he was “discriminatory as hell.” I understood what he meant.

I agree that it would be difficult for insurers to maintain separate sets of tables for different races, but there’s no question that insurers (and their agents) can be racist if they want to be. The traditional method used by insurers to accomplish this goal is a practice known as “redlining.”

And of course legislatures recognize this possibility by prohibiting “redlining” as well as other discriminatory practices.

I agree that insurance companies can (and indeed must) discriminate on the basis of age if they are permitted. The real question is whether legislatures should permit or prohibit such age discrimination.

20

Kabbes- Since you seem to big into “risk factors” what about alcoholism in the driver’s family. Should insurance companies be able to run genetic background tests for alcoholism on the grounds that someone who has history of alcoholism in their family is more likely to be an alcoholic and hence more likely to drive drunk and cause an accident?
On a side note, what about insuring people with physical handicaps…it would seem that insurance should be higher for people with one arm or leg…or no arms for that matter and drive with their feet! But, it also seems that it would be discriminatory and illegal to assume that they are not equally as capable as any other driver on the road.