They say necessity is the mother of invention—a cliché that could soon be put to the test if automobile insurers are required to retool reporting processes and generate unique ratings to accommodate a new Ontario government initiative recognizing gender diversity.
In a June 29, 2016 news release, the Ministry of Government and Consumer Services announced:
The Ontario government is changing the way it displays sex and gender information on health cards and driver’s licences to ensure the fair, ethical and equitable treatment of people with trans and non-binary gender identity.
Early indications suggest gender information will continue to be collected and included on driver’s licences, but a new identifier “X” will be available for those choosing to identify with neither the “M” or “F” option.
So how might it impact insurance companies?
In a word—data.
Insurance actuaries forecast the probability and cost of automobile claims for defined risk segments. Vast pools of underwriting and claims data allow companies to leverage the law of large numbers and probability models to develop rates that accurately reflect the exposures for the segment. The larger the sampling of data, the more credible the projections—a coin flipped ten times could conceivably produce a heads-to-tails ratio of 10:0. Flip the same coin 1,000,000 times and the ratio will inevitably be close to 1:1.
Casinos are more than familiar with the principles of probability. With strategically contrived “comp” incentives, they hope to keep gamblers in the game for enough plays to exploit the house’s long-run statistical advantage.
The price we pay for automobile insurance in Ontario is influenced by things we can and can’t control. Our years of driving experience, accident and conviction record, and the vehicle we drive factor into how we are rated within our driver class. But where we live, how old we are, and whether we’re male or female, contribute to our base ratings. The data behind the variables allows for a pricing structure that rewards driver record, reflects the experience of the base profile, and minimizes the potential for better driver segments subsidizing those generating more claims.
Statistics show a young male driver is more likely to be involved in an at-fault accident than a female driver of the same age. There will always be exceptions, but collectively, young male drivers account for more chargeable accidents than their female counterparts.
The reasons for this are less clear. There may be practical influences—such as relative time on the road or kilometres driven. There could also be considerations of psychology, like temperament or propensity for risk. But for insurance rate-makers, it’s not the reasons but the results that matter.
In the case of a new gender class, historical data is non-existent. If the premium for a young female driver is less than that for a young male, what premium is fair and reflective for an X-Gender driver? An actuary without data is no more equipped than a homeowner without duct tape.
“This is a potentially big deal for insurers that we do need to get ahead of,” cautioned a representative of a major insurer in a recent discussion with Mitchell & Whale president, Adam Mitchell.
At this point it’s unclear how the changes will impact automobile insurers and there will undoubtedly be ongoing discussions between insurers and the provincial regulator.
With Ontario automobile insurance—where private companies provide product and prices heavily regulated by the government—consultation is critical. What may seem a simple addition of a new gender code at the conceptual level, can have significant practical implications for an industry having to configure systems, processes, and rating structures to implement it.
Mitchell & Whale will continue to follow developments on X-Gender licencing closely and updates will be available to you at this website.
September 2017 Update: The X-Factor: Genderless Auto Insurance Hits Ontario