Rating factors some states have banned: gender, credit, occupation

A handful of states bar insurers from using particular personal characteristics to set auto rates, but there is no national list and no two states draw the line in the same place. Michigan bans the largest set of factors, including sex, marital status, education, occupation and credit score. California and Massachusetts restrict many of the same ones in different ways, North Carolina and Pennsylvania bar gender-based rates, and states such as Maryland and Oregon allow credit data only with strict limits. If a factor was "illegal where you used to live," it may be perfectly legal where you live now.

This article covers how states decide a factor is unfair, what the statutes and regulations in several states actually say (each is cited), why insurers and regulators disagree, and what banning a factor does to the spread of premiums.

How a state decides a rating factor is unfairly discriminatory

Nearly every state's rating law says rates may not be excessive, inadequate or unfairly discriminatory. All insurance pricing discriminates in the plain sense, because it charges different people different amounts. The legal question is whether a difference is "unfair."

Michigan's statute is a useful, explicit example. Under MCL 500.2109, a rate is unfairly discriminatory "if the differential between the rates is not reasonably justified by differences in losses, expenses, or both, or by differences in the uncertainty of loss." The justification has to be supported by a reasonable classification system, sound actuarial principles and "actual and credible loss and expense statistics." Under that kind of test, a factor survives if the numbers support it.

Actuaries read the phrase the same way. In 2009 testimony to a legislators' conference, a past president of the American Academy of Actuaries explained that a rate "that reflects cost or expense differences on the basis of relevant risk characteristics is not unfairly discriminatory," that actuarial standards do not require proof of a cause-and-effect link between a factor and losses, and that most statutes flatly prohibit race, color, religion and national origin (American Academy of Actuaries testimony, February 2009).

The legislative or regulatory ban is a different tool. It says that even if a factor predicts losses, society will not allow it. Two routes lead to that result:

• A statute or regulation names the factor. Michigan, North Carolina and Massachusetts do this, as the next section shows.
• A regulator or court reads "unfairly discriminatory" more broadly. In *Hartford Accident & Indemnity Co. v. Insurance Commissioner*, decided September 27, 1984, the Pennsylvania Supreme Court upheld the Insurance Commissioner's decision that gender-based auto rates were unfairly discriminatory under the state's rate act, reading the phrase in light of the Commonwealth's public policy against sex discrimination in its Equal Rights Amendment. The record in that case showed a 26-year-old unmarried man with a clean driving record paying $148 more a year than a similar woman, and the insurer defended the gap with data showing men in that age group had more accident losses. The court affirmed anyway.

What the statutes and regulations say, state by state

The table summarizes only the sources cited in this article. A blank means this article did not verify the point; it does not mean the factor is allowed.

Hawaii also restricts several of these factors by statute (see the note at the end of this section). Use your own state's regulator to confirm any state not shown.

Michigan: the longest list

Michigan's auto classification rule is written as a short list of what insurers may use, followed by a list of what they may not. Under MCL 500.2111, classifications must be based only on factors such as the driver's age or length of driving experience, driver primacy, mileage, type of use, vehicle characteristics, the number of cars or licensed operators, and the amount of insurance, plus a few PIP-specific factors. Subsection (4) then bars rates or classifications based on sex, marital status, home ownership, educational level attained, occupation, the postal zone where the insured lives and credit score. A separate section, MCL 500.2162, says an insurer "shall not use an individual's credit score to establish or maintain rates or rating classifications for automobile insurance."

Michigan law elsewhere (MCL 500.2153) also regulates credit information and insurance scores across personal lines, including a bar on using them to deny, cancel or nonrenew a policy and a requirement that scores not be calculated using income, gender, address, zip code, ethnic group, religion, marital status or nationality. How those provisions fit together is a question for the Department of Insurance and Financial Services, not a reader's guess.

Massachusetts: sex, marital status, credit and most age rating

M.G.L. c. 175E, section 4 says that for private passenger auto rates "shall not be based, in whole or in part, on any credit information," including a numerical credit-based insurance score, and that insurers may not refuse to issue or renew a policy based on credit information. It also says risks "shall not be grouped by sex or marital status and shall not be grouped by age except" to give drivers 65 and older a rate 25 percent lower than the comparable standard rate. The statute still allows an insurer to use its own payment history and claims, driver or registry reports. See Massachusetts auto insurance: PIP, the Safe Driver Plan and 2008 for how the system works in practice.

California: a closed list and a required order

California under Proposition 103 does not simply ban factors; it requires three mandatory factors and permits only a defined set of optional ones. In 10 CCR 2632.5, the mandatory factors are the driver's safety record, annual miles driven and years of driving experience. The optional list includes type of vehicle, multi-vehicle households, academic standing, driver training, vehicle characteristics, marital status of the rated driver, persistency, non-smoker, relative claims frequency and severity, and a few others. Gender, credit and occupation are not on it.

The order matters too. 10 CCR 2632.8 requires the factor weights to run in decreasing order: driving safety record first, annual miles second, years of driving experience third, then each optional factor. In effect, an insurer cannot let a "soft" optional factor outweigh your driving record. See California's good driver discount: the Prop 103 rule and who qualifies and proposition 103.

North Carolina and Pennsylvania: gender

G.S. 58-3-25(a) provides that after September 1, 1975, no insurer shall base any standard or rating plan for private passenger automobiles or motorcycles, in whole or in part, directly or indirectly, upon the "age or sex" of the persons insured. Pennsylvania reached a similar result by decision rather than statute, as described above.

Maryland and Oregon: partial limits on credit

Not every limit is a ban. Under Maryland's Insurance Article 27-501, for private passenger auto an insurer may not refuse to underwrite, cancel, refuse to renew or increase the renewal premium based on credit history, may use credit history to rate a new policy only within stated conditions (including ignoring credit factors more than 5 years old), and, if actuarially justified, may give a discount or surcharge of up to 40 percent. Oregon's ORS 746.661 bars canceling or nonrenewing a policy in effect for more than 60 days based in whole or in part on credit history or an insurance score, allows credit to decline coverage at initial underwriting only alongside other substantive factors, and excludes certain credit inquiries and the absence of a credit history from use. Each also addresses marital-status changes (Oregon bars re-rating on credit when a customer's marital status changes through death or divorce; Maryland bars a premium increase solely because an insured becomes a surviving spouse). Read the statute or the regulator's summary for the full conditions.

The NAIC describes the national pattern in general terms: in most states insurers cannot rely on these scores alone to raise rates or deny, cancel or refuse to renew a policy, many states require a notice when credit played a role in an adverse decision, and "some states impose additional restrictions or prohibit certain uses altogether." For adverse action notices, see adverse action notices: what an insurer must tell you about a rate.

Hawaii. Hawaii's insurance code (section 431:10C-207) is generally described as prohibiting rating plans that use age, sex, driving experience, credit bureau rating, marital status and similar characteristics. I could not open the statute text for this article, so confirm the current wording with the Hawaii Insurance Division.

Why insurers defend these factors and regulators sometimes override them

Insurers' argument is statistical. If a factor predicts claims, they say, ignoring it forces lower-risk drivers to subsidize higher-risk ones. The Academy testimony above makes the actuarial case in three parts: rates must reflect expected costs, a factor need not be proven to cause losses, and rating factors can be supported by data from any reliable source. The same testimony notes that in 2006 the Maryland Insurance Administration reviewed an insurer's use of occupation and education in auto insurance and concluded the insurer had demonstrated both were predictors of loss that met actuarial standards.

Regulators and legislators answer with fairness. A factor can be predictive and still be treated as off limits, because it falls on people for traits they did not choose, tracks protected classes, or is hard for a consumer to understand and change. Critics of credit-based scores in particular argue that they penalize people for financial circumstances rather than driving behavior, and Massachusetts and Michigan take them out of auto rating entirely. Insurers respond that the scores predict claims; the NAIC describes them as estimating "the likelihood of a future insurance claim," not loan repayment. Neither side is arguing about arithmetic; they are arguing about what pricing should be allowed to reflect.

What a ban does to premiums

Banning a factor does not shrink the total cost of claims. It changes who pays.

A worked example, with invented numbers. Say an insurer expects annual claim costs of $2,000 for each driver in group A and $1,600 for each driver in group B, and its book is 60 percent group A and 40 percent group B. With the factor allowed, A drivers are charged around $2,000 and B drivers around $1,600 (ignoring expenses and profit). If the factor is banned and nothing else changes, the insurer must charge everyone the blended expected cost: 0.6 x $2,000 + 0.4 x $1,600 = $1,840. A drivers save $160, B drivers pay $240 more, and the insurer collects the same total.

Real markets are messier in three ways:

1. Proxies. When a factor is banned, insurers lean harder on factors that are still allowed and correlate with it, such as vehicle type, mileage or driving record. The gap between groups narrows but rarely vanishes.
2. Mix changes. If B drivers, now paying more, shop elsewhere or drop coverage, A drivers' share rises and the pooled price drifts up.
3. Other factors carrying more weight. Where gender and credit are off limits, driving history, mileage and vehicle can carry more of the load. Some states also limit territory: Michigan bans the postal zone as a rating factor. The credit-based insurance scores and car insurance guide explains how scores are used in states that allow them, and rate filings (rate filing) show how an insurer weighs what is left.

Whether premiums fall or rise for any given person depends on which group they would have been in, which factors remain, and how the insurer files its rates. There is no single national figure for the effect, and none is quoted here.

How to confirm the rule in your state

1. Search your state's insurance code for "rates," "unfairly discriminatory," "automobile" and the factor's name. A statute usually lists prohibited factors in a single section.
2. Check your regulator's consumer pages. Most departments of insurance publish a shopper's guide listing the factors insurers may and may not use. Find yours through what your state insurance department does.
3. Ask the insurer in writing whether it uses credit information, gender, marital status, occupation or education in your state, and ask for the notice required when credit information affects your price.
4. Look at the rate filing. Many states make auto rate filings public; the class plan and rating rules show which factors are in use. A regulator can help you find them.
5. Check before you move. Rules change across state lines. The moving to a new state: how to switch your car insurance guide covers what to expect, and state car insurance requirements lookup covers minimum coverage.

Common questions

Is gender rating illegal everywhere?

No. This article's sources show that gender is barred or treated as unfairly discriminatory in Michigan, Massachusetts, North Carolina and Pennsylvania, is not on California's permitted list, and Hawaii's statute is described as restricting it (see the Hawaii note above). In many other states it remains a legal factor, though its use may be limited for adults or older drivers. See how age, gender and marital status affect car insurance.

If credit is banned, can an insurer still use my driving record and claims?

Yes. A credit ban is about credit information. Massachusetts, for instance, says its ban does not stop an insurer from using its own payment history or claims, motor vehicle and driver history reports. Driving record, claims history and mileage generally carry more weight where credit is not allowed.

Does a ban on one factor prevent discounts based on it?

Not automatically. Some statutes ban the factor for rates and underwriting alike; others, like California's list, permit related factors such as academic standing or driver training. Check the statute rather than assuming a "good student" or occupation discount is gone. If you are rated by an affinity group discount, ask the insurer to explain how it is permitted.

Where can I complain if I think an insurer used a banned factor?

Start with the insurer, then contact your state insurance department. See how to file a complaint against a car insurance company and escalating a problem inside your insurer before you complain.

Key takeaways

• There is no national list of banned factors; Michigan bars the most (sex, marital status, home ownership, education, occupation, postal zone and credit score), and other states restrict smaller sets.
• Some states ban a factor outright, others limit how it may be used, for example on new policies only or never for cancellation or nonrenewal.
• California takes a different route: three required factors in a required order of importance, and a closed list of optional ones.
• Insurers argue a factor is sound if it predicts losses; regulators may still treat it as unfair, and a ban redistributes cost rather than reducing it.
• To find out what applies to you, read your state's statute or regulator's guide and ask your insurer which factors it uses.