DISCRIMINATION IN AUTOMOBILE INSURANCE: ISSUES AND REMEDIES
| Published date | 01 June 1986 |
| DOI | http://doi.org/10.1111/j.1744-1714.1986.tb00498.x |
| Date | 01 June 1986 |
| Author | FRANK A. VICKORY,PATRICK F. MARONEY |
DISCRIMINATION IN AUTOMOBILE INSURANCE:
ISSUES AND REMEDIES
*PATRICK
F.
MARONEY
**FRANK A. VICKORY
Automobile insurance premiums may vary dramatidy
from
individual
to individual for identical coverage.' The differences are attributable to
the insurance industry practice
of
placing policyholders into groups
of
drivers who supposedly have
a
similar probability of loss. Drivers within
each group
are
then charged a similar premium?
To
a large extent, drivers
are classified according to their age, sex, marital status, and scholastic
achievement: with young single males who
are
not scholastic achievers
Assistant Professor of Business Law, College of Business, Florida State University.
**
Assistant Professor
of
Business Law, College of Business, Florida State University.
SURANCE
RISK CLASSIFICATION:
EQUITY
AND
ACCURACY
144
(1978)
[hereinafter cited
as
EQUITY
AND
ACCURACY].
a
See,
e.g..
Shayer,
Driver
ChSi,fication
in
Automobib
Insurance,
in
EQUITY
AND
AC-
CURACY.
aupra
note
1.
at
1-24.
See
also
FLORIDA
INSURANCE
RESEARCH
CENTER,
AN EVALIJA-
TION
OF
RISK CLASSIFICATION SYSTEMS
IN
AUTOMOBILE
INSURANCE
8-30
(19791,
[hereinafter
cited as EVALUATION
OF
RISK CLASSIFICATION
SYSTEMSk
In its simplest form, insurance involves the transfer of risk from an individual
to
a
group and the sharing
of
losses on an equitable
basis
by all members of the group. The
individual is thus able
to
substitute a small certain price (premium) for a large uncertain
financial loss (the contingency insured against) that would exist in the absence
of
the in-
surance. E.
VAUGHAN
&
c.
ELLIOTT. FUNDAMENTALSOFRISK
AND
INSURANCE
17-18
(2d
ed.
1978).
In determining the premium
to
be
charged for insurance coverage, insurers must
estimate the expected losses of the individual being insured; accordingly, they utilize
classification systems in an attempt to assure that individuals
are
grouped in such
a
way
that those with a similar possibility
of
loss
are charged the same rate.
See
Shayer,
supra
note
2,
at
1-24.
a
Shayer,
supra
note
2.
This particular classification system is not always used; in some
states,
some or all of these factors are prohibited, and
in
some cases, insurers have volun-
tarily ceased using these classification variables.
See
infra
notes
10,34-70
and accompa-
nying text.
'
see,
e.g..
DIVISION
OF
INSURANCE.
COMMONWEALTHOFMASSACHUSETTS.
AUTOMOBILE
IN-
270
I
Vol.
24
I
American
Business Law
Journal
paying the highest premiums.' The differences can
be
great.
For
instance,
the Massachusetts state insurance Commissioner has noted that, based
on this classification system, a twenty-four- year-old single male driver
with an accident-free record could
be
charged as much
as
sixteen times
the annual premium paid by a seventy-year-old state resident with an
identical driving record and the same coverage.'
Insurers generally defend this classification system as
fair
even though
it
results in such widely disparate premiums.' They maintain that the
distinctions utilized are clearly supported by statistical data showing that
younger drivers as
a
class have higher accident rates than older drivers,
that women
as
a class have fewer accidents than men, and that married
drivers as
a
class have fewer accidents than single drivers? According-
ly, they say,
if
premiums did not reflect these different accident rates,
then drivers who lack the characteristics resulting in higher accident
rates
would
be
subsidizing those who possess these characteristics.8 The essence
of the insurer's position is that a rate distinction
is
not unfairly
discriminatory
if
it
is actuarially accurate.
The question arises, however, whether the higher risk of loss shared
by drivers classified as young, male,
or
single
is
actually attributable to
other factors -for instance,
less
driving experience
or
more hazardous
driving conditions. While these causal factors are perhaps more common
among those classes of drivers, they are neither shared by all drivers
grouped within the classes nor limited to such classes.
If
the traditional
characteristics are not in
fact
the causes
of
higher accident rates, they
are no more than easily verifiable, highly visible substitutes for the real
factors that determine higher risk. Arguably, then,
it
is
unfair to charge
'
EQUITY
AND
ACCURACY.
supra
note
1,
at
144.
Id.
The Commissioner, it should
be
noted, assumed that the younger driver was
a
Boston resident and that the older one was from a rural area, a distinction that could af-
fect the difference in premiums. In his study, however, the Commissioner's main concern
was the use
of
age, sex, marital status, and scholastic achievement
as
rating variables.
a
Kasyjanski.
I.I.A.A.
Suppwts
Traditional
Ratiw.
86
NATIONAL UNDERWRITER
PROP-
ERTY
&
CASUALTY
INSURANCE
EDITION
84
May
14.1982).
'
Id
Kasyjanski cites actuarial statistics compiled by, inter alia, the Insurance Ser-
vices Office, the National Association
of
Insurance Commissioners, and the California Depart-
ment of Insurance, showing that young, male, single drivers indeed have higher accident
rates; in his view, therefore, it is manifestly fair that they should pay higher rates
for
automobile insurance.
a
Id.
Kasyjanski notes, for instance, that if all persons paid a flat rate
for
automobile
insurance, then costs for adult drivers would
rise
from
8
to
2'7
percent (depending upon
other factors applicable
to
the adult driver, such
as
distance
from
workplace and whether
the automobile was for business
or
pleasure), while those for youthful drivers would drop
from
15
to
59
percent, even though the youthful drivers (especially single males) would
present a significantly higher risk
to
the insurers.
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