March 11, 2019 In one of his last moves as California Insurance Commissioner on January 1st 2019, Dave Jones banned the use of gender in determining and setting insurance rates for private passenger cars. As California is the third largest state by area in the U.S., this move is a check for the insurance industry, letting insurers know that they might not be able to use this and similar discriminatory practices in determining rates in the future.
Jones noted that it is important that auto insurance rates are based on factors that fall within the control of a driver, rather than personal characteristics that the drivers have no control over. Some other states that prohibit gender discrimination in rating auto insurance include Hawaii, Massachusetts, Montana, North Carolina, and Pennsylvania. At least 40 states still use gender as a rating factor. California's ban though, is different, as Jones also prohibited the acceptance, rejection, or raise of car insurance rates based on a driver's educational status, job, or credit score.
Car insurers initially came out saying that some consumers will have to start paying higher rates due to insurers being denied accurate data to help safe drivers pay less for their car insurance. For example, men typically drive more than women and more often engage in risky driving habits such as failing to wear a seatbelt, driving while impaired, and speeding. Despite these findings and popular beliefs, recent studies have shown that statistically, women have been paying more for car insurance than men, most likely due to other factors such as finances.
The determination of rates for auto insurance has been an issue for a long time. The use of credit scores as a rating factor became problematic a number of years ago since drivers did not understand what their credit score had to do with their ability to drive a vehicle. As stated above, California has also removed educational and job status as rating factors, as those factors are also vaguely if at all related to driving record.
Interestingly, insurers maintain loads of statistics that they use to develop premiums and various rating classes. Using the historical data they have on their book of business, they can see with statistical certainty, drivers with certain credit scores, jobs, or education history may be more or less likely to have accidents. Although this does not relate to actual driving skill, it relates to claim activity. Credit scoring was able to take hold because insurers could reasonably show that certain characteristics beyond driving record and accident history were legitimate indicators of future claims. The public, however, sees this differently and pushes back against these rating factors that seem arbitrary and discriminatory.
With this action by California, the pendulum starts to swing back to traditional rating factors that are more directly tied to driving ability, such as driver experience, driving records and reported accidents.