Ageism In Auto Insurance: Examining The Practice Of Charging Older Drivers More

Auto insurance companies use various factors to determine rates, and age is one of the key considerations. While insurance providers are generally not allowed to discriminate, age is one of the exceptions where discrimination is permitted by law. Young drivers, typically those under 25, are considered high-risk and often face higher insurance premiums. This is because younger drivers are statistically more likely to be involved in accidents, making them a greater financial risk for insurance companies. On the other end of the spectrum, senior drivers may also experience age-based discrimination and higher rates due to increased risks associated with older age. While age-based discrimination in auto insurance is prevalent, it is important to note that it is not the only factor influencing rates, and insurance companies must also consider factors such as driving record, location, and vehicle type.

Auto insurance companies can discriminate based on age, but not gender

Auto insurance companies can legally discriminate based on age, but not gender. While insurance companies are prohibited from discriminating based on gender, they do use particular facts about people to measure risk and set rates. This means that some form of discrimination is both necessary and legal.

Young drivers between the ages of 16 and 19 are three times more likely to be involved in a fatal crash than drivers over 20, which is why they are given higher rates based on age and experience. However, gender markers on driver's licenses are also used to set rates, which has come under scrutiny in recent years. Several state insurance regulators have taken steps to ban the use of gender markers in risk assessments for insurance premiums. For example, Massachusetts forbids the consideration of gender when determining car insurance rates.

In addition to age and gender, other factors that insurance companies use to set rates include the make and model of the vehicle, driving habits and usage, location by zip code, and credit score. While it is legal for insurance companies to use these factors to set rates, it is important to recognize that they can contribute to discrimination and unequal access to insurance coverage.

To address this issue, state and federal lawmakers and industry watchdogs are calling for reforms to limit or eliminate discriminatory car insurance practices. For example, the Prohibit Auto Insurance Discrimination Act (PAID Act) and the Preventing Credit Score Discrimination in Auto Insurance Act have been introduced in the U.S. House of Representatives to combat car insurance price discrimination.

Racial discrimination is illegal under insurance law

Auto insurance companies use underwriting guidelines to determine who they will insure and at what rate. While insurance companies are prohibited from discriminating based on factors like race, they use particular facts about people to measure risk and set rates. This means that some form of discrimination is both necessary and legal. However, questions about what counts as fair or unfair discrimination have been raised, especially since the murder of George Floyd in 2020.

A 2013 legal review from the University of Michigan Law School found that anti-discrimination laws vary significantly by state and insurance type. It also reported that many jurisdictions lacked specific laws restricting unfair discrimination based on race, suggesting the need for federal intervention.

Historically, the insurance industry has engaged in racial discrimination through practices such as redlining and race-based premiums. Redlining, a discriminatory practice dating back to the Franklin Delano Roosevelt administration, involved denying loans or insurance to residents of certain areas based on their race or ethnicity. Race-based premiums, which were legal until the passage of the Civil Rights Act in 1964, resulted in higher insurance rates for people of colour.

While explicit forms of racial discrimination in insurance have become illegal, investigations have revealed that discriminatory practices like redlining persist in subtle forms. A 2017 investigation by Consumer Reports and ProPublica found disparate auto insurance prices in several states that could not be explained by differences in risk, suggesting a "subtler form of redlining."

To address racial discrimination in insurance, regulators and industry members have proposed policies and legislative actions. In 2021, Colorado passed a bill protecting various classes, including race, from discrimination in underwriting. The bill requires insurance companies to demonstrate that their data and algorithms do not discriminate based on race or other protected characteristics.

Insurance companies can discriminate based on disability

While insurance companies are prohibited from discriminating based on factors like race, they can discriminate based on disability. An insurance provider can discriminate if there is a greater insurance risk because of a person's disability. This means they can use a person's disability to decide whether to offer insurance and on what terms it is offered.

However, they must base their risk assessments on reliable and relevant sources, such as statistics. For instance, a person with cancer applying for car insurance may be charged a higher premium than other drivers, but only if the insurance company can show that there is a greater risk in insuring them. They must base this decision on the applicant's health condition and objective information about their illness. Additionally, they cannot have a general policy of charging people with cancer more, as this would be unlawful discrimination.

In the context of car insurance, disability should not be a factor in determining insurance premiums. However, disability conversions, such as vans modified with ramps for wheelchair users, are often priced by mainstream insurance providers as high-end performance conversions, resulting in higher insurance costs. This is despite the fact that people with disabilities and those who drive them are generally safer drivers with fewer accidents.

To address this issue, it is recommended to shop around for insurance and consider specialist providers that have a better understanding of disability-converted cars.

The use of credit scores to set insurance rates is forbidden in some states

While insurance companies are prohibited from discriminating based on factors like race, they can use particular facts about people to measure risk and set rates. This means that some form of discrimination is both necessary and legal.

In the United States, credit-based insurance scores are used by insurance companies to assess consumers and predict the likelihood of a person filing claims that will lead to monetary loss for the insurer. These scores are based on information from a person's credit report, such as their credit history and credit utilization ratio. While most states allow insurance companies to use these scores, some states have strict limitations or bans on their use.

California, Hawaii, Maryland, Massachusetts, Michigan, Nevada, Oregon, and Utah have strict limitations or bans on the use of credit-based insurance scores for auto and homeowners insurance policies. In these states, insurance companies are restricted from using credit scores to deny coverage, cancel policies, or determine premium rates. For example, in California, credit-based scores are not used for underwriting or rating auto policies, and in Hawaii, auto insurers are banned from using credit ratings for setting standards.

On the other hand, in Oregon and Utah, insurance companies can consider credit information when initially offering a policy, but there are limitations. In Oregon, credit cannot be the sole factor for denying or refusing to renew a policy, while in Utah, it cannot be the only factor used to make the initial underwriting decision.

The use of credit scores in insurance pricing has been a subject of debate, with critics arguing that it perpetuates economic and racial inequality. Washington State has also introduced a rule to prohibit the use of credit scores in insurance rates, joining the handful of states with similar bans. Insurance groups have opposed this rule, arguing that credit scores are good predictors of future insurance claims and that the ban could lead to higher premiums for customers.

Insurance companies can discriminate based on location

One example of this is redlining, a discriminatory practice where loans or insurance are denied to residents of certain areas based on their race or ethnicity. This practice originated in the Franklin Delano Roosevelt presidential administration, where the Home Owners' Loan Corporation (HOLC), a government agency, classified neighborhoods across the country based on perceived levels of risk. These classifications were based on factors such as the age and condition of housing, access to transportation, proximity to undesirable properties, and the racial composition of residents. Neighborhoods with predominantly racial minority populations were marked in red and labelled "hazardous", leading to lenders refusing to provide loans or insurance to these areas.

Today, redlining is illegal, but investigations have revealed that it persists in subtle forms in the auto insurance industry. For example, a 2017 investigation by Consumer Reports and ProPublica found disparate auto insurance prices in California, Illinois, Missouri, and Texas that could not be explained by differences in risk. This suggests a more subtle form of redlining is still occurring.

In addition to redlining, insurance companies may also use other location-based factors to discriminate, such as property crime rates, population density, and weather patterns. These factors can influence insurance rates, particularly in urban areas with higher populations of racial minorities.

To address these issues, some states have taken steps to ban the use of certain location-based factors in insurance rates. For example, Massachusetts forbids the consideration of gender and credit score when determining car insurance rates, while New York, Michigan, and Maryland consider the use of credit scores as a legal form of discrimination. In 2021, Colorado passed a bill requiring insurance companies to demonstrate that their use of external data and algorithms does not discriminate based on race, sex, sexual orientation, or gender identity.

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