Professor Sampathkumar Ranganathan featured on WalletHub

SampathKumar Ranganathan

Ph.D., Professor of Marketing, Austin E. Cofrin School of Business, The University of Wisconsin–Green Bay

Is it fair for car insurance companies to consider gender or age when setting premiums?

From an actuarial standpoint, using gender and age to determine car insurance premiums can be justified by empirical data. Research consistently shows that younger drivers, especially males, are statistically more likely to be involved in accidents, justifying higher premiums for these groups. However, fairness from an ethical perspective is more complex.

Some states have banned the use of gender as a pricing factor in insurance (e.g., Hawaii, Massachusetts, Pennsylvania, North Carolina, and Montana), while others have not. The reasons for charging men more also vary. Some insurance companies have found that men are more likely to file claims, thus charging them more, while others have found the opposite.

According to a Zebra survey, nationally, women’s average annual car insurance premiums were about $10 higher than men’s in 2018. Women paid more than men for car insurance in 25 states, while men paid more than women in 21 states.

The variation in how different states and insurance companies approach gender-based pricing can be attributed to differences in regulatory frameworks, actuarial assessments, and risk models. Since each state has the authority to set its own rules regarding insurance practices, some choose to ban the use of gender as a factor, while others allow it. Additionally, insurers’ varying conclusions about gender and risk—whether men or women are more likely to file claims—demonstrate that empirical findings can differ based on the specific datasets and methodologies used. As a result, inconsistencies in pricing across states and between genders reflect the complex intersection of regulation, risk assessment, and market behavior.

Is it fair for car insurance companies to consider a driver’s occupation when setting premiums?

From an actuarial standpoint, considering occupation in premium calculations can be justified. Certain professions are statistically associated with higher or lower risks of accidents. For example, individuals in jobs that require extensive driving (e.g., delivery drivers or sales representatives) may spend more time on the road and thus have a higher probability of accidents. Similarly, some high-stress jobs could increase the likelihood of risky driving behavior, whereas occupations that involve fewer driving hours or more predictable routines (e.g., office jobs) may correlate with lower accident risks. Actuarial data helps insurers estimate the risk associated with different professions, leading to more accurate premium assessments.

Ethically, however, the fairness of using occupation as a factor is more complex. Charging higher premiums based on occupation can be excessive, especially if the driver’s actual driving behavior (e.g., driving record, mileage) is not considered as heavily. Some argue that premiums should be based on individual factors such as driving history, rather than characteristics like occupation that may not directly reflect a person’s driving skills or behavior. Furthermore, using occupation as a determinant might disproportionately impact individuals in lower-paying jobs or certain industries, adding financial burdens that are not necessarily tied to their driving ability.

Thus, better pricing models that include a person’s records, like driving history, can be a better proxy for risks than simply using their profession.

Do you think car insurance companies are fair to college students?

Car insurance companies often charge higher premiums to college students, largely because they fall into a higher-risk demographic—typically young, inexperienced drivers who statistically have a higher likelihood of being involved in accidents. Whether this is “fair” can be examined from both actuarial and ethical perspectives, supported by relevant statistics.

According to the Insurance Institute for Highway Safety (IIHS), drivers aged 16-19 are nearly three times more likely to be involved in fatal crashes compared to drivers aged 20 and older. This higher risk leads insurance companies to charge more for young drivers, which includes many college students.

In a 2021 report by The Zebra, a popular insurance comparison website, the average annual premium for a 20-year-old was approximately $3,000, while the national average for drivers of all ages was about $1,674. This means that college students often pay nearly double what older drivers pay, purely based on their age and presumed inexperience.

Some insurance companies attempt to offset the high premiums by offering discounts to college students, particularly those who maintain good grades. For instance, many companies offer a “good student discount,” which can reduce premiums by 10-15% if a student maintains a B average or better. Additionally, students who drive less (due to living on campus or close to school) may qualify for low-mileage discounts, further reducing costs. However, these discounts often do not fully compensate for the higher base premiums students face due to their age.

In my opinion, car insurance companies often charge excessive premiums to college students. These premiums are not mitigated adequately. Some form of rewards, such as long-term loyalty rewards or additional discounts, should be provided to college students who stick with the same insurer.

Source: https://wallethub.com/cheap-car-insurance/wisconsin#experts=Sampathkumar_Ranganathan