A post at the Dangerous Economist pointed me to this 2020 Medium article by Koen Smets (which is worth reading in its entirety):
Motor insurance in Europe forms a very interesting case study. Traditionally, insurers charged women less, because they tend to be safer drivers, and hence make fewer and smaller claims. Unlike life expectancy, the factors determining the risk here are much more linked to individual choice and behaviour. Since 2012, an EU directive forbids insurers to use gender as an element in the calculation of the premium. So, in Q4 2011, men paid on average 17% more than the overall average premium, while women paid 20% less. In 2018, that difference with the overall average premium had shrunk to a 5% uplift for male drivers, and a 6% discount for female drivers. (The residual difference stems from the fact that men tend to drive more miles per year, in more powerful cars.) So, relatively speaking, the ‘gender equity’ intervention has increased the average premium for the lower-risk women by more than 17%, while it has cut it by just under 10% for the higher-risk men. Is this an improvement? It’s not so sure. [sic]
Insurers charge higher motor vehicle insurance premiums to male drivers, because male drivers cost the insurers more. Male drivers tend to drive more kilometres, and have more severe accidents (see also here). It is reasonable for insurers to charge a higher premium to a more costly segment of the population, especially where those drivers are more costly because of their own behaviour (men could be lower cost to insurers, if they drove differently).
Insurance is subject to an asymmetric information problem that economists refer to as adverse selection. The uninformed party (the insurer) cannot easily tell drivers with 'good' attributes (low-risk drivers) apart from drivers with 'bad' attributes (high-risk drivers). To minimise the risk to themselves of engaging in an unfavourable market transaction, it makes sense for the insurer to assume that every driver is high risk. This leads to a pooling equilibrium - low-risk drivers are grouped together with the high-risk drivers and all drivers pay the same premium, because they can't easily differentiate themselves.
Since the premium is based on drivers of all risks on average, many low-risk drivers will find the cost of insurance to be too high. They will drop out of the market. The average risk of the remaining pool of insured drivers will increase, so the insurer will need to increase the insurance premium. Medium-risk drivers may then find the premiums too high, and drop out of the market. So, insurers raise premiums again. And so on, until the market fails because only the riskiest drivers would be left, and the insurer surely doesn't want to insure them!
One way of avoiding this adverse selection problem is for insurers to try to reveal how risky a driver each insurance applicant is. That way, we would have a separating equilibrium, where high-risk drivers pay higher premiums, and low-risk driver pay lower premiums. When the uninformed party tries to reveal private information (like how risky a driver an insurance applicant is), we refer to this as screening. In this case, the insurer uses various characteristics of the insurance applicant to estimate how risky they are likely to be. These characteristics might include their insurance history, past driving behaviour, the type of car they are insuring, and their demographic characteristics (including age and gender).
By imposing a law that equalises insurance premiums for men and women, the government is essentially telling insurers that they can no longer use gender as a screening tool for determining which drivers are higher risk. In the absence of that information, the insurer is a bit less informed than before. It moves things back towards the pooling equilibrium (but not all the way, because insurers still know the other details of the applicants). At the margin, insurers will now tend to over-estimate the risk of female drivers, and under-estimate the risk of male drivers. The consequence of this is that the premium for riskier male drivers becomes lower than it would have been without the law, and the premium for female drivers becomes higher than it would have been without the law. Essentially, relatively safe female drivers are cross-subsidising relatively riskier male drivers.
Wait! Wouldn't the intention of the EU directive have been to increase equity between female and male drivers? If you have a policy that equalises insurance premiums for male and female drivers, but in so doing makes male drivers better off and female drivers worse off, is that actually increasing gender equity, or decreasing gender equity? It would be interesting to know whether the policy makers had thought about this at all.
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