August 19, 2021

Study: Women may pay more than men for car insurance

Hannah Grover/NM Political Report

With the exception of 16-to-25-year olds, a study found that some women pay more than men for car insurance in New Mexico, according to a consumer advocacy group.

According to the data, provided by Consumer Federation of America, the difference in annual average pay rates between a single woman and a single man are small as long as all other factors are equal.

But, if a woman has a poor credit history, the rate differences between what that woman pays compared to what a man with good credit history pays can be considerable, according to the data.

One example is a 35-year-old single female driver with a perfect driving record but poor credit who lives in zip code 87121, which encompasses an area of Albuquerque’s Westside and west of Albuquerque. This hypothetical female pays, on average, $621.20 more annually for car insurance than a male with better credit credit.

But the disproportionate annual car insurance premiums are not unique to zip code 87121. It is true for every zip code in New Mexico, according to the data provided by CFA*.

Michael DeLong, research and advocacy associate for CFA, said car insurance companies use algorithms that include factors that have nothing to do with a person’s driving record. For instance, he said most drivers don’t realize their credit scores factor into their car insurance rates. 

But, it can turn average car insurance rates into discriminatory practice because single, divorced and widowed women pay more, on average, for car insurance than men in general, but also more than married women, DeLong said. That’s true in most states, including New Mexico, DeLong said.

The hypothetical 35 year-old male and female drivers used to determine average insurance rates in New Mexico for every zip code have both been licensed for 19 years, both have high school diplomas and both rent their homes. Both drive a 2011 Honda Civic LX and make a 12-mile commute, five days a week for 12,000 miles annually. The hypothetical male would also, like the hypothetical female counterpart who pays $621.20 more, have a perfect driving record, according to DeLong.

Lee Ann Alexander, American Property Casualty Insurance Association (APCIA) vice president for state government relations, said by email that the association cannot “verify the accuracy of the findings regarding gender or the appropriateness of the methodology.”

But, she said that “every bit of information that insurance companies use is used for only one purpose, to predict risk.

“To help ensure auto insurance pricing is fair, affordable and accessible to the largest possible number of people, insurers use a wide variety of tools to help determine which drivers are more or less likely to file a claim and the overall cost of the claims,” she wrote.

DeLong said that credit history is “one of the biggest factors,” when car insurance companies consider risk.

“It seems to have the biggest impact,” he said. 

He said insurance companies, when provided evidence that women pay more, say that there is another factor and “offer up a different excuse.”

Credit scores are themselves based on a variety of things, including the percentage of how much of an individual’s available credit line is being used each month and an individual’s credit mix, according to Experian, one of the three credit scoring companies.

The U.S. Federal Reserve studied gender differences in credit scores in 2018 and the report found that single men tend to have higher credit scores, on average, than single women. The report found that single women tend to struggle to pay off debt more than single men do and have more “intensive uses” of credit.

DeLong suggested that, ultimately, the problem could come down to the fact that women tend, on average, to make less money than men do. Credit scoring companies don’t ask how much money individuals make. But when people make less, they could become more reliant on credit cards and have less overall income to make purchases such as a home, which would help with the credit mix.

In addition, credit scoring, despite its technical algorithms that are supposed to leave human bias out of the equation, have reflected “stunning racial disparities,” according to a National Consumer Law Center report.

Racial disparities have shown up in auto insurance, as well, DeLong said. CFA has done studies that show that people living in neighborhoods that are predominantly African-American pay more for car insurance even if the individuals have perfect driving records, he said.

“We think widespread discrimination is still going on. Insurance companies say the [African-American] neighborhoods are more dense. But we’ve found African-American neighborhoods that are similar to white neighborhoods but their African-American neighbors are paying much higher premiums for car insurance,” DeLong said.

DeLong said there is a lack of data on whether auto insurance companies charge women of color drivers more than other demographic groups.

“We strongly suspect women of color are paying more,” he said.

Laws in New Mexico

New Mexico has laws that prohibit discrimination in insurance, though none are specific to car insurance alone, said Russell Toal, New Mexico Superintendent of Insurance.

There is a law that prohibits discrimination in insurance based on race, color, religion or national origin. Another law prohibits sex discrimination in insurance. A third law prohibits insurance rates from being excessive and unfairly discriminatory.

Toal said that most insurance companies, and in particular car insurance companies, use complex algorithms. He said that based on the experience of the Office of Insurance staff, which regulates insurance in New Mexico, widows, divorced and single women are treated the same as married women.

But, he added that he didn’t think his office “has the ability to do the kind of analysis” that NM Political Report is reporting on.

DeLong said the state of Colorado passed a bill recently that bans unfair discrimination in auto insurance and it bans the use of algorithms and data models and general information.

California, Hawaii, Massachusetts, Pennsylvania and North Carolina have all passed laws banning the use of gender in auto insurance pricing, DeLong said. California and Massachusetts have passed laws banning the use of credit history for car insurance pricing.

In 1944 the U.S. Congress passed a law that exempted most insurance companies from federal regulation, DeLong said. It was originally intended to be temporary, but it has not changed.

“Most states have primary responsibility for insurance,” he said. 

*Data for this article were acquired by Consumer Federation of America from Quadrant Information Services, LLC. The data are representative of publicly sourced data using the variables and base profile defined below and individual rates may differ.