California Insurance Commissioner Ricardo Lara wants his state to join several others in prohibiting auto insurers from charging unmarried drivers higher rates than married motorists.
“The price of your auto insurance should be based on how you drive, not whether you’re married,” Lara said when he announced his proposal. “Insurance rates should be grounded in actual driving risk, not personal circumstances that have nothing to do with how someone behaves behind the wheel.”
But auto insurance industry advocates say actuarial data points to higher claims risks for single drivers and lower risks for married ones.
If adopted, Lara’s proposed rule would put California alongside Hawaii, Massachusetts, and Michigan in prohibiting insurers from using marital status as an auto insurance rating factor. California has allowed insurers to use this factor since 1996.
Consumer Watchdog says marriage-based rating violates state law
Insurance research groups say that data shows married drivers tend to have lower claims costs. But consumer groups — most prominently Harvey Rosenfield, founder of Consumer Watchdog — argue that just because something relates to claims doesn’t mean it’s fair to charge unmarried drivers more.
Rosenfield argues that in California, this practice also conflicts with Proposition 103, a law he wrote in 1988 that changed insurance rules in the state. Proposition 103 states that a driver’s safety record, annual mileage, and years of driving experience are the most important factors when determining car insurance rates. Any other approved factors must be strongly related to risk of loss.
“The voters have said you can’t do it,” Rosenfield said in an interview with Insurify. “Prop. 103 took away from the industry its prerogative to discriminate against people based on race, religion, or any factors that aren’t substantially related to risk of loss.”
The insurance industry says the data shows a difference.
Married drivers hard brake 10% to 15% less often than average, while single drivers hard brake about 10% more often, according to an American Property Casualty Insurance Association (APCIA) report in the Casualty Actuarial Society’s Actuarial Review. Married drivers’ claim costs were also about 20% below average, while single drivers’ costs were about 15% above average, according to the report.
“The rationale for maintaining these rating variables is that people pay a premium that more closely resembles their actual losses,” Robert Hartwig, Ph.D., co-author of APCIA research on the topic, said in a 2021 interview with Claims Journal.
Nathan Weller, an insurance adviser at Insurpedia, says actuaries need to question whether marital status still adds useful information after first considering age, mileage, driving experience, vehicle, and driving record.
“There is probably some predictive value for marital status in P&C insurance,” he tells Insurify. “However, other factors probably explain more of the variation in loss risk and should therefore be included in auto insurance rating in California.”
Rami Sneineh, owner of Insurance Navy Brokers, makes a similar point. “Marital status does not directly describe any of those driving behaviors, even if insurers have found some connection between marital status and claims,” he says. He suggests considering marital status only after reviewing a driver’s record, mileage, experience, and claims.
Issue not yet settled in courts
Earlier this year, the California courts struck down a lawsuit challenging the California Department of Insurance regulation that allows insurers to use marital status as an insurance rating factor. The plaintiffs didn’t challenge the finding that marital status is strongly related to risk of loss, only that it was discriminatory.
Both the Alameda County Superior Court and the California Courts of Appeal ruled that the state’s current regulation permitting the use of marital status could stand.
Lara’s proposal would remove marital status as a factor through new regulations.
Who might pay more?
If insurers remove marriage as a factor, experts say insurance companies will likely spread premium determination across the other approved factors. Some unmarried drivers might pay less, while some married drivers could pay more, as other factors carry more weight.
The state insurance department hasn’t said how many drivers the proposed change would affect or by how much.
A California study from more than 30 years ago examined what would happen if insurers removed age and marital status as rating factors. It found that about 74% of people would see a small change in their premiums, keeping within about 5% of their old ones. But young married drivers generally saw a premium increase.
Another analysis found that removing gender, marital status, and age led to an average 11% increase in premiums for married drivers younger than 25, while single men saw a 9% decrease and single women a 3% decrease.
What’s next? Could driving data replace marital status?
Other U.S. states use telematics programs to track braking, acceleration, and other driving habits directly. California doesn’t currently allow the use of this kind of data in setting auto rates.
Rosenfield is cautious about swapping one indirect measure for another that’s hard to understand. He says insurers should have to show regulators how each factor relates to losses and premiums. Rosenfield also questions whether increasingly personalized pricing undermines insurance’s purpose of pooling risk.
“What’s the point of having insurance if they’re basing your premium on you, right?” he said. “You’re not pooling risks.”
