In June 2016, the Ministry of Government and Consumer Services in Ontario announced that the government would be altering the way sex and gender are displayed on all government identification including driver’s licenses. The goal was to ensure the “fair, ethical and equitable treatment of people with trans or non-binary gender identity.”
Traditionally, the insurance industry has used gender to establish rates and pricing, particularly for customers looking to buy auto insurance.
How then does the new law affect our industry?
In the insurance business, actuaries determine the cost and probability of claims based on where we live, our age, and until very recently, whether we are male or female. Males, for example, have historically been far more likely to get into car accidents than females. Also, when they do have an accident their statistical chances of death and serious injury are far greater. Those who select gender X on their government-issued identification represent a small sample size of the total population. As such, there is far less data available to effectively determine their rate. As the industry adjusts practices to accommodate these new circumstances, major players are reacting in different ways.
Intact Insurance, for example has indicated that they will deal with the change by quoting gender X customers both a male and female price and giving them the least expensive premium of the two. This is a partial way of ensuring that gender X customers are not discriminated against with higher prices than their binary counterparts.
Europe has taken things a step further. Claiming that it violates their human rights code, the EU banned pricing based on gender in 2012. At the time, EU Justice Commissioner Viviane Reding said it was “now clear that an insurance company must not distinguish between women and men; all customers must be treated equally. This is a matter of respect for fundamental human rights. It is now also becoming a matter of good business practice.”
It is clear that the times are changing.
Having operated a gender-based actuarial system for several decades, this political intervention may have a significant impact on the industry. How will actuaries now determine rates moving forward? Will the inability to use gender result in a less predictable risk forecasting? Will insurance companies have major losses?
It will likely take several years for the full implications of the new Ontario law to be realized. In the meantime, actuaries and insurance carriers will have to make the necessary steps to adjust.
