CAR INSURANCE PRICES: New evidence of indirect gender discrimination

The cost of car insurance for young men in predominantly male occupations such as plumbers and civil engineers became relatively higher following the European Court of Justice ruling on ''gender-neutral'' insurance pricing. At the same time, insurance prices become relatively lower for young drivers in occupations mostly held by women, such as social workers and dental nurses.

These are among the findings of new research by Stephen McDonald, to be presented at the Royal Economic Society''s 2015 annual conference. His study looks at the impact of a law change in December 2012 that banned companies from charging different prices to men and women on the basis of their sex. Comparing prices from before and after the change of law, he finds that after the ban:

• Prices are the same for men and women.
• But prices become relatively lower for young (21 year old) drivers in occupations mostly held by women, but higher for those in predominantly male occupations. For example, premiums increased by an estimated 13% for 21 year old civil engineers, but decreased by 10% for dental nurses of the same age.
• The effect of occupation on price does not change for older drivers.

The move to gender neutral pricing in the car insurance market followed a ruling by the European Court of Justice that charging different prices to men and women was incompatible with the equal treatment of the sexes and could be considered gender discrimination.

Prior to this, EU member states had the power to let companies charge different prices as long as it could be proven that there was a link between an individual''s sex and the level of risk – and since women drivers tend to make smaller car insurance claims, then they tended to be offered lower premiums.

But while the ruling, known as the Test-Achats Ruling after the Belgian consumer association that brought the case, bans the use of gender to price insurance, it remains possible for firms to use other characteristics that are associated with both risk and gender.

For example, it is legitimate for companies to give different prices to people in different occupations since some jobs are more risky than others, but at the same time some occupations are held mostly by either men or women. This leaves open the possibility that direct gender discrimination may be replaced by indirect gender discrimination on the basis of occupation or even car type.

To examine the impact of the Ruling, the study analyses insurance price data collected over a two-year period between November 2011 and November 2013. Data were collected for men and women, for four ages (21, 25, 40 and 55), for six occupations and three car types.

The occupations represent different mixes of males to females, with social workers and dental nurses being mostly female, civil engineers and plumbers mostly male, and solicitors and sports and leisure assistants being gender neutral. Similarly, the three car types (Fiat 500, Ford Focus and Vauxhall Vectra) are driven by men and women with differing risks.

There is no evidence of direct discrimination after the ban, with prices being the same for men and women who are otherwise identical, but there is some evidence of indirect discrimination for young drivers as the effect of occupation changes after the ban, such that those occupations with more female workers get relatively lower prices.

For example, premiums increase by an estimated 13% for 21 year old civil engineers, but decrease by 10% for dental nurses of the same age. But this is not the case for the older ages, and nor is there any evidence that the type of car is used to gender discriminate indirectly. It suggests that this is therefore only an issue in the riskiest segments of the motor insurance market and for those ages where the differences in expected claims between men and women is greatest.