NZ blamed for ‘widow penalty’ in US insurance pricing

by Maryvonne Gray 03 Aug 2015

NZ blamed for ‘widow penalty’ in US insurance pricing

New research carried out in the US has found women who become widowed face an average 20% rise in the cost of motor vehicle insurance at four out of six major insurers – and a New Zealand study compiled in 1990 is behind the reasoning.

The Consumer Federation of America (CFA) collected quotes for state-mandated minimum liability insurance from six insurers in 10 cities and found GEICO, Farmers, Progressive, Nationwide and Liberty routinely quoted higher prices to single, ie never married, divorced or widowed, female drivers. State Farm was the only one not to charge different rates based on marital status.

The CFA investigation was done in a bid to urge auto insurers to price policies determined by driving-related factors, such as accidents, moving violations and miles driven, rather than more socioeconomic factors such as credit ratings or marital status.

Stephen Brobeck, CFA executive director, said the justification for using lower rates for married drivers came from a New Zealand injury study done in 1990 which, with motorcycle accidents removed, had less than 100 cases.

The study’s applicability to the US today would appear to be dubious, he said.

The story made headlines on various media outlets including time.com, the Chicago Tribune, and CNBC.com, with most referring to the New Zealand study as the basis for using marital status as a rating factor.

James Lynch, chief actuary and director of information services at the Insurance Information Institute (III), defended the reasoning behind the ‘widow penalty’, saying simply that unmarried drivers are statistically riskier drivers.

“Married people are less likely to be in an accident,” he said.

The CFA maintained it was part of insurers’ attempts to attract more affluent households, who may own two cars and purchase comprehensive coverage plus a home ownership policy, rather than the less attractive prospect of a person driving an older car just seeking liability coverage.

Meanwhile, New Zealand insurers and actuaries were distancing themselves from the methods used in the US, despite the fact a New Zealand study was cited.

President of the New Zealand Society of Actuaries, Richard Beauchamp, said he hadn’t heard of the study, which was published in 2004, and suggested a reason for its use could be it was the only one of its kind.

“It’s a study that’s been done in a developed nation, it’s probably reliable as it was a published study, it’s just a question of whether it’s absolutely relevant to the US today,” he said.
He was keen to stress that the US and New Zealand were very different markets.

“Motor policies in the US insure bodily injury, whereas they don’t in New Zealand as we have ACC. So marital status may not be a statistically significant rating factor here because local insurers insure just the property part, the motor car.

“Typically insurers rely on a number of rating factors, (type of car, age of driver, location, etc) and there may be other things that are material, but using them is often a commercial decision, and may be subject to law and the Human Rights Act,” he continued.

“Under the Human Rights Act it is possible to use rating factors that are discriminatory, so long as they are statistically significant, and according to this [CFA] study, marital status is in this case, but it depends whether the [1990] study is really significant, and I wouldn’t want to judge that. That’s up to the US insurers.”

A spokesperson for AA Insurance confirmed that the company did not collect that kind of information from its customers and therefore that kind of information would not influence premiums.

And the Insurance Council of New Zealand (ICNZ) said it was not aware of any insurer in New Zealand using that research or setting premiums based on the marital status of women.

“In New Zealand the insurance sector would only calculate premiums based on statistical differences that prove there would be a change to the risk,” ICNZ spokesperson Sarah Knox said.

“Factors such as age of drivers, gender, vehicle type, licence type and length of time licence held, storage of vehicle overnight (i.e. garage or roadside), value of vehicle, security features of the car, and accidents and claim history are considered.  All of these factors have been statistically proven to either reduce or increase the likelihood of occurrence or cost of a claim.”