Project Description:
Lori Medders, Ph.D., Joseph F. Freeman Distinguished Professor of Insurance at the Department of Finance, Banking and Insurance, Jamie Parson, Ph.D., Chief Diversity Officer and Associate Professor at the Department of Finance, Banking and Insurance, and Matthew Thomas-Reid, Ph.D., Associate Professor of Educational Foundations at the Department of Leadership and Educational Studies have evaluated, through this study, the use of gender as a rating variable in auto insurance. Determining what constitutes fairness in insurance price discrimination can be complex and subject to debate. However, this study asserts that risk transfer to auto insurers with pricing based on gender, as is the case in most states and for most insurers, may be problematic. Gender identity is outside the control of the insured, immutable, and not risk causal. Further, since discriminating based on gender identity may perpetuate negative stereotypes and potentially inhibit socially valuable behavior, such as the purchase of insurance, gender-based rating is undesirable despite its statistical value. This study argues for price modernization in auto insurance. Introducing Gender X into gender-based rating is a start. Longer term, the use of risk-specific information —i.e., behavioral and exposure data— for which gender has served as proxy makes economic sense. Moreover, as increasingly autonomous vehicles depersonalize underlying risks associated with transportation, driver-specific attributes necessarily take a backseat to other variables in fair price discrimination.
Lori Medders
Ph.D., Joseph F. Freeman Distinguished Professor of Insurance
Department of Finance, Banking and Insurance
Jamie Parson
Ph.D., Chief Diversity Officer, Associate Professor
Department of Finance, Banking and Insurance
Matthew Thomas-Reid
Ph.D., Associate Professor of Educational Foundations
Department of Leadership and Educational Studies
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