Why are insurance companies allowed to take information like s*x and age into account?

Question

Okay, I am pittyfully unknowledgable about insurance, but it seems like one of the few areas where a company is allowed to descriminate (for want of a better word) based on information like age and gender.

Like I said I know nothing about insurance, but my thinking on it is that its there to spread the risk of accidents etc, so why doesn't everyone pay the same price?

Just wondering ^.^

Answer 1

It's not "discrimination."  It's fact.  Young people, for example, have higher accident rates so pay more for auto insurance.  Older people have higher mortality rates so will pay more for the same life insurance coverage.

Answer 2

Discrimination on the grounds of s*x and age only apply under employment law. Service providers are allowed to discriminate (otherwise you would have 40 year olds attending playschools).

s*x and age are risk factors in insurance - women tend to be more careful drivers than men, as do older people.

Answer 3

Because people are different. Actually, it's more fair. Women don't take stupid macho risks - why should they pay a bigger premium than actually fits their real behaviour?

Old people take fewer risks, so get lower premiums.

Young stupid macho males cause all the problems, they should pay.

Answer 4

Risk is the obvious thing which insurance companies use to assess premiums that people pay.....so who is going to be the worst risk....a geteel lady driver in the country or a boy racer in the inner city.....get the point...one pays more than the other...you guess which....that's the way Insurance works.

Answer 5

Statics are allowed to take into account most things based upon evidence other than what is not PC.

Answer 6

It seems unfair, but it works out in the end.  Let's face it, you are more apt to get into an accident due to your younger age due to your lack of driving experience.  As you get older with more experience and a good driving record, your insurance will reflect that.  So what seems unfair now will even out later.  As for the gender bit, younger males are more aggressive than their female counterparts.  Although, you could say that younger females have more things like makeup and hair to distract them.  Must be in the statistics.

Answer 7

What are the chances that a particular individual will be dead within 10 years (from any cause)?

If I told you that individual was 25 years old and didn't smoke, would that change your answer?

Answer 8

In conjunction to prior answers:  insurance is the study of statistics, risk and probability.

Age is a key element in most forms; auto insurance, health & life insurance, etc.  Younger drivers "statistically" have more accidents and claims than older (more experienced) drivers.

However, a younger person has many years to live and at the same time, be in better health than someone, say 30 years older.

Risk is in fact spread around, but only within the same "rating classification."  Doesn't make sense to have a 25 yr old man pay the same for life insurance as a 45 year old.  "Statistically" speaking, the 45 year old will reach his average life expectance in 32 years, where the 25 year old will reach in it 52 years.  

Regarding s*x:  men have more accidents, drive faster, etc as a general rule (doesn't matter what age) than women.  

At the same time, a woman's life expectancy is greater than a man's, however she will have more medical issues / concerns over her lifetime than than man.

In a nutshell:  the lower the risk, the lower the premium; the higher the risk, the higher the premium.  Similar analogy would be one's credit score; the lower the number, the higher their risk and thus, the higher the interest rate.

A bit wordy I know - I hope it helps