Remember Jake from State Farm? Here's the whole story.
California Bans Gender Based Car Insurance Rates
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* podcast transcript
MAX
Ever notice how some headlines grab you for a SEC then kind of fade away? Like, interesting, but then it’s back to your regularly scheduled life.
EVA
Yeah, totally.
MAX
Well, today we’re really hitting the brakes on one of those headlines. We’re diving deep into a California law that banned using gender to set car insurance rates.
EVA
Oh, interesting.
MAX
Seems simple at first glance, right? But trust me, there’s a whole lot more going on beneath the surface.
EVA
Like what kind of stuff?
MAX
Well, leave it this way. When it comes to insurance, California is often a crystal ball for the rest of the US.
EVA
Oh yeah.
MAX
I can remember those bans on insurance companies using credit scores and education to Jack up prices.
EVA
Right, right.
MAX
California was way ahead of the curve on that. So when they went gender neutral for car insurance, everyone kind of sat up and took notice.
EVA
Makes sense. Yeah, they weren’t afraid to shake things up. So how did this whole thing even start?
MAX
Well, if you rewind to 2019, our article says the then insurance commissioner, again named David Jones, seemed to notice some fishy stuff going on with how men and women were being charged for car insurance. Like it wasn’t consistent at all.
EVA
Oh, really? How so?
MAX
Well, sometimes women were getting charged more. Sometimes men were. There wasn’t a clear pattern.
EVA
Hmm, that’s weird and kind of suspicious, especially since statistically speaking, women tend to be safer drivers overall.
MAX
Yeah, you always hear about guys being the risky ones behind the wheel, right? But it sounds like Jones wasn’t the only one who thought something was off. His successor, Ricardo Lara, was on the same page. They both felt strongly that using gender as a predictor for risk, well, it just wasn’t right and had to change.
EVA
Like it was less about actual risk and more about like maybe some outdated biases creeping in.
MAX
Exactly. So good intentions all around, but I’m guessing not everyone was doing cartwheels over this new law.
EVA
Yeah, probably ruffled some feathers. I mean, you’re talking about a whole industry that’s used to doing things a certain way for, like, ever. Any kind of big change is going to cause some friction.
MAX
Right. Totally. So what did the push back look like?
EVA
Well, some folks in the industry, they tried to downplay it. They were like, oh, gender is just a teeny tiny factor in how we set prices. We’re talking like a difference of maybe $25 a year.
MAX
$25.00 That doesn’t sound like something to lose sleep over.
EVA
Exactly, and that’s what makes it so interesting, right? If it was such a non issue, why all the fuss about changing it? Some even went so far as to threaten pulling out of California all together. Like if you make us do this, we’re out of here.
MAX
Whoa, seriously? Did any companies actually pack their bags and leave?
EVA
Well, spoiler alert, Nope. Not a single one.
MAX
Empty threats, huh? But it shows just how divided people were on this issue.
EVA
Totally. You had consumer groups, especially those representing women, who were over the moon about this change. Because remember, studies were showing that women were often paying more for car insurance once they hit 25. It was like a pink tax in disguise.
MAX
Wow that’s crazy. So on one hand you have people celebrating this as a huge win for fairness, and on the other you have some in the industry downplaying the whole thing. It’s like 2 totally different realities.
EVA
Right. Like which narrative are you going to buy into?
MAX
Exactly. So what actually happened when this law finally went into effect? Did it live up to all the hype or was it a big yawn?
EVA
That’s where things get really interesting. Turns out it wasn’t as simple as like flipping a switch and everything’s different.
MAX
So who ended up coming out on top? Who were the big winners in this whole gender neutral car insurance thing?
EVA
Well, the article points to a pretty unexpected group. Young male drivers.
MAX
Really.
EVA
Yeah, especially those under 25.
MAX
Huh, interesting you don’t usually hear about young guys getting a break on car insurance. What’s the deal with that?
EVA
Well, think about it right? What are some of those classic stereotypes about young men and driving?
MAX
Oh man, where do we even start? Risky, reckless. Easily distracted.
EVA
Exactly. More likely to be in accidents, right?
MAX
Yeah, sadly, there’s a reason those stereotypes exist.
EVA
Right. And those stereotypes, whether they’re fair or not, they often translate into higher insurance premiums for young guys, even if their actual driving record isn’t that bad. This new law, it basically forced insurance companies to look beyond those old assumptions and base their rates on, you know, actual driving data.
MAX
So it leveled the playing field a bit. No more young male driver tax. I like it, but did the article give any hard numbers to back this up? Like how much of a difference did it actually make for these guys?
EVA
Oh yeah, they did. A California Department of Insurance analysis estimated that young men could see their premiums drop on average by about 5% after the law took effect.
MAX
5% Not too shabby, especially for younger drivers who are probably already like scraping pennies together.
EVA
Exactly. But and you knew there was going to be a butt, right? This advantage for young men? It might have come at the expense of, you guessed it, young women.
MAX
I was wondering when we get to that. So the women drivers took a hit.
EVA
It’s not quite as simple as winners and losers, but yeah, there were some potential downsides. The same analysis that showed those drops for the guys, it’s suggested young women might actually see their rates go up a bit, maybe around 6%.
MAX
So young men catch a break and young women end up potentially paying more. Makes you wonder if it’s really more fair after all, you know.
EVA
That’s the $1,000,000 question, isn’t it? And it gets to the heart of what we’re trying to unpack here, because we often think of fairness as like treating everyone the same, right? But what happens when the system itself has these like built in inequalities from the get go? In this case, by taking gender out of the equation, it might have actually reinforced some of those pre-existing biases.
MAX
So instead of closing the gap, it might have widened it for some drivers. That’s pretty thought provoking. But beyond those immediate effects on young foresters, what about the bigger picture in California? What happened after the dust settled from this law?
EVA
That’s the thing about policy changes. Sometimes the most interesting stuff happens after that initial shock wears off, you know?
MAX
So we’ve talked about how this law shook things up for young drivers, but did it actually change the game beyond California? Like, did other states see what was happening and think, hey, we should try that too?
EVA
Well, that’s the thing about California, right? They’re kind of like the trendsetters. What starts there often doesn’t stay there for long.
MAX
It’s true, other states are always keeping an eye on them, even if they won’t admit it. So did this whole gender neutral car insurance thing catch on elsewhere?
EVA
It’s interesting, while no other state has gone as far as California in completely banning gender based rates, it definitely got the conversation started everywhere.
MAX
Like it forced everyone to at least acknowledge that maybe there was something to this whole fairness thing.
EVA
Absolutely. Remember those consumer groups we talked about, the ones who were really pushing for this change? They didn’t just stop at California. They took that win and used it as leverage in other states, pointing to California as an example of how things could be smart.
MAX
So even if other states weren’t ready to copy California’s homework exactly, they still had to at least look at it.
EVA
Right. And the insurance industry as a whole, they couldn’t just ignore it anymore. They had to be ready to answer some tough questions. You know, like, how do your rates actually work? Are you sure you’re not unfairly penalizing certain groups?
MAX
Yeah, that kind of scrutiny can really make you think twice about how you’re doing things.
EVA
For sure, and I think for a lot of people it sparked a bigger conversation about fairness and risk, not just in car insurance but in all sorts of areas. Like, should any of us be penalized for things we can’t control? How do we make sure systems aren’t biased to get certain groups?
MAX
Like, how do you balance individual risk with fairness on a larger scale? Tough questions for sure. Not the kind of stuff you usually think about when you’re shopping for car insurance.
EVA
Exactly. But that’s the beauty of a deep dive like this, right? It’s not just about, oh, here’s one law in California. It’s about how does this one thing connect to all these other big ideas about fairness and data and how we assess risks?
MAX
Totally. It’s about looking beyond the surface and seeing the bigger picture. Well, this has been a wild ride. We started with gender and car insurance and somehow ended up talking about the ethics of algorithms.
EVA
I know right? It’s all connected.
MAX
So listeners, next time you’re behind the wheel, maybe give a little nod to California. They might be on to something with this whole shaking things up approach. Until next time, drive safe and keep those brains engaged.
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.
