For decades, drivers who did not identify as male or female – known as non-binaries – faced a problem: When applying for car insurance, they were presented with a form asking them to identify their sex. Besides the difficulty of feeling as if their gender was not affirmed, there was also a chance that the gender they chose would affect the cost of their monthly premiums.
Historically, auto insurers viewed younger women as safer drivers than younger men, who are at higher risk of accidents, speeding and impaired driving convictions. For this reason, young women tend to pay lower premiums than younger men. Then some US states began to recognize the legal basis for gender identities beyond men and women, which posed a problem for auto insurers. What should they charge someone who identifies as non-binary? How can we accurately assess the risk factors of a group whose identity is only just beginning to be recognized?
New gender identities
The recent increase in state legislation recognizing and accommodating people who identify as non-binary has forced insurers to respond. Many states also now allow X-sex designations on birth certificates. Here’s a look at some of the issues at play:
No proof required: As of the date of this article, there are 20 states in which people can change the gender on their driver’s license without documentation.
Documentation needed: In states like Arizona, Florida, and Idaho, documents such as a signed letter from a licensed physician or mental health professional are required to obtain a gender-neutral driver’s license. In Utah, this documentation means showing a passport or birth certificate with a changed gender.
Form required: Some states may not require people to provide certification of their gender, but will require them to complete a form. Illinois has reported that they will begin offering options in 2024 to non-binary and transgender people, who will only need to complete a change of gender designation form.
Prohibited gender as a scoring factor: In six states – California, Hawaii, Massachusetts, Michigan, Pennsylvania and North Carolina – gender is not allowed to be used as a rating factor for auto insurance. That leaves auto insurers scrambling to find other ways to compare risks that don’t include gender, both for those states and for any states that may pass similar legislation in the future.
Gender allowed as a scoring factor with documentation: In Oregon, which was the first state where auto insurers were required to provide a non-gender option to customers purchasing insurance, not allowing gender X may be considered discriminatory.
The challenge of updating class plans
Gender, along with the driver’s age and marital status, are usually addressed in personal car class plans. These class plans are developed by actuaries based on significant historical experience. They help insurers set rates for people who want auto insurance.
But the gender debate has been around for a long time. In 1985, Montana passed a law requiring insurers to offer the same insurance to everyone, regardless of gender. Years later, in a 2021 legislative session, Montana changed the law to allow for gender consideration in auto insurance premiums.
During the 1970s, there were calls for “unisex car insurance”, rather than non-binary people. But the demand for gender-neutral car insurance has remained constant over the years. The challenge is that there is not enough data on non-binary people to establish a rate based solely on this population. Because of all of this, applying for car insurance can be a complicated process for non-binary people and insurance companies and may even result in non-binary people being turned down.
To solve this problem, insurers could choose to ignore gender as a rating factor, as they are required to do so in some states. This could mean that women will end up paying similar premiums to men for insurance, which is what happened for female drivers in California. Some states, which offer unisex coverage, might require insurers to take the average of male and female rates and apply them to non-binary applicants.
Insurers may also choose to focus on other methods of risk assessment, such as driving records and telematics, and abandon the genre altogether. Updating a class plan means looking at what each state says about how these risks should be addressed, and then fully evaluating how to measure the risks accordingly.
If insurers are looking for a rating factor solution for non-binary factors, they may need to look at solid data on claims experience across the industry. This data could potentially help develop a baseline of gender-neutral driving risk, providing insurers with more accurate data on non-binary driver safety and their auto insurance pricing, while ensuring that rating factors accurately reflect the diversity of car buyers. insurance today.
Franc Gribón (Frances.Gribon@verisk.com) is Director of Personal Automotive Actuarial Products at Verisk and a Fellow of the Casualty Actuarial Society.