California Bans Gender Based Car Insurance Rates

On January 1, 2019 all California passenger car insurance pricing officially became gender neutral, according to a new state directive.

In his last move as California Insurance Commissioner, David Jones, signed into effect the “Gender Non-Discrimination in Automobile Insurance Rating Regulation” before leaving office.

This rule declares a complete prohibition on the use of gender to determine individual automobile insurance ratings throughout the Golden State.

Although the regulation is firmly in place, car insurance carriers have until July 1 to submit revised, gender neutral rate plans. Once the rates are approved, insurance companies must put the updated pricing into action by the end of this year.

California is the first state to make this type of change in nearly 30 years. A handful of other U.S. states, such as Hawaii, Massachusetts, Montana, North Carolina, and Pennsylvania also passed similar gender neutral insurance regulations dating as far back as the 1970s.

Why the Pricing Change and Does It Matter All That Much?

Former Insurance Commissioner, Jones, explained in an interview that a widespread study of California auto insurance pricing showed a lack of consistency.

Jones said the review revealed some insurers charging females more without any cause, while other insurance companies priced male drivers higher without any apparent reason.

Jones’ replacement, Insurance Commissioner Ricardo Lara, also supports the new gender neutral pricing policy. Lara issued the following statement: “Gender, race, ethnicity, or sexual orientation are beyond your control, and it is not a fair or even effective way to predict risk.”

Two industry watchdog groups, Consumer Federation of California (CFC) and The Consumer Federation of America (CFA), both applaud this move by the state. In fact, CFC and CFA have also encouraged other states to follow California’s example and end any form of discriminatory pricing practices.

The CFA has stated that recent insurance studies reveal women typically pay more for auto coverage than males, particularly after the age of 25. This fact came as quite a surprise to many insurers, customers, and statisticians.

The study CFA referenced did not clarify the reason for this discrepancy. Some have hypothesized that women pay more not because of their gender but for other reasons such as their overall finances. Based on the results of the study cited by CFA, it seems the new California regulations might make sense.

Of course, with any big industry change, there are certainly critics of the new policy too. Janet Ruiz, Spokesperson for the Insurance Information Institute, advised insurance companies use many different factors when calculating passenger car insurance rates and gender is a “minor” factor.

So minor in fact that Ruiz believes revised pricing may increase or decrease premiums by only as much as $25 dollars per year.

Other critics have speculated that insurers may react to California’s regulation by simply pulling their auto products from the market altogether.

By July 2019 we may have a better idea of whether insurance companies may take such an action, depending on which insurers file amended rates and which abstain from doing so.

Young Male Drivers May Benefit the Most

It is no secret that inexperienced male drivers under the age of 25 tend to pay the highest rates for car insurance hands down. So teenage boys may be the ones to experience the biggest benefit from California’s gender neutral pricing regulation.

In fact, the California Department of Insurance put together an economic analysis of their latest insurance rule.

Results showed male drivers, with less than three years of driving experience, could have a 5% premium decrease, on average.

On the other hand, female drivers with similar driving experience may receive up to a 6% average increase in their auto insurance premiums.

Will California’s DOI Regulation Impact Other U.S. States?

California is often recognized, in general terms, as one of the most progressive U.S. state. It seems that reputation remains very accurate within the insurance industry as well.

California previously banned the acceptance, rejection, or raising of insurance pricing due to an individual’s level of education, or credit score. The state also jettisoned gender based pricing for health insurance.

In addition, a 2018 California law states that no resident is required to share their gender and each person has the option to be identified as “non-binary”, if they so choose.

So it may have been simply the next logical step for Californians to see such a change in car insurance pricing guidelines.

Industry insiders believe this change does put pressure on the national insurance market, as a whole, to eliminate what some see as an archaic, and possibly discriminatory, element of auto insurance pricing.