Car Insurance and the Arbitrary Quality of Egalitarian Justice

Classical liberals claim that theories of justice must be judged by their practical capacity to facilitate positive sum games in society and to eliminate scope for the exercise of inconsistent and arbitrary political power. Unfortunately, as one of the recent rulings by the European Court of Justice reveals few people in today’s legal and political elites are willing to conceive justice in this regard. Three weeks ago the European Court ruled that it was inadmissible for car insurance providers to take into account sex-specific differences for risk assessment and actuarial purposes on the grounds that this breached the fundamental ‘right to equal treatment’ for men and women. As a consequence, European women will no longer be able to benefit from cheaper driving insurance resulting from their lesser likelihood of involvement in automobile accidents than men of equivalent age and experience. It is difficult to see how this decision is compatible with a positive sum view of society. Men will not be made any better off by the decision as their insurance premiums will at best remain unchanged and women will be made worse off as their previously cheaper premiums will now be equalised upwards in line with those of men.

The nature of this European ruling, however, reveals the wider incompatibility of egalitarian theories of justice with non-arbitrary rule. Egalitarians usually advocate ‘equalising’ policies on the grounds that inequalities are only justified if in some way they operate to raise the position of the ‘worst off’ (Rawlsians) or, if they stem from personal choices rather than from the ‘bad brute luck’ of genetic accident or social circumstance (the ‘luck egalitarian’ followers of Ronald Dworkin). According to these views, any inequalities that do not raise the position of the worst off or do not result from personal choices should be eradicated or compensated for in some way. The European Court’s ruling could certainly be construed in this vein. Charging lower (unequal) car insurance premiums for women might not be justified because this ‘unfair advantage’ does not benefit men in any way. And, differential premiums should be eradicated because the higher risk of accidents for men may not reflect their free choice to engage in riskier driving behaviour. Rather, such ‘choices’ may reflect a genetically determined propensity for men to take more risks than women, or alternatively the fact that many men have been socialised in a ‘macho culture’ which encourages them to take risks which are not genuinely of their ‘choosing’. It is not clear whether such principles directly informed the European Court’s interpretation of ‘equal treatment’ in this particular case, but if they did then all manner of dystopian policy consequences might follow from any non-arbitrary application of the relevant egalitarian doctrine.

Read the rest of the article on the Pileus website.

Mark Pennington is the author of Robust Political Economy: Classical Liberalism and the Future of Public Policy

"And, differential premiums should be eradicated because the higher risk of accidents for men may not reflect their free choice to engage in riskier driving behaviour. Rather, such ‘choices’ may reflect a genetically determined propensity for men to take more risks than women, or alternatively the fact that many men have been socialised in a ‘macho culture’ which encourages them to take risks which are not genuinely of their ‘choosing’. It is not clear whether such principles directly informed the European Court’s interpretation of ‘equal treatment’ in this particular case, but if they did then all manner of dystopian policy consequences might follow from any non-arbitrary application of the relevant egalitarian doctrine." And possibly it was neither, but that rather than individual men 'choosing' or being 'genetically determined' or being 'socialised in a macho' culture to take risks, many of those individual men did not actually take risks at all, they were simply lumped in on gender grounds with those who do. The real problem with pricing in this way was not that it discriminated, but that it discriminated insufficiently well between risky and non-risky drivers, by treating the blunt divisor of sex - arbitrary, unavoidable, practically unchangable - as a proxy for driving skills. Collective punishment is rightly prohibited by international law.
Rob, I disagree with your conclusion. It is true that insurance companies class/group many people of various characteristics together when they assess premiums, but this is inevitable given the massive cost that would be entailed in tailoring policies directly to the risks of specific individuals. Older people on average are charged more for health insurance even though some older people are healthier than some younger people. I don't see this as an injustice - it is an attempt, to cope with the reality that older people on average are more likely to make a claim on health care providers than are younger people - I don't think it should be seen as a form of 'collective punishment'.
@Rob - collective punishment is something that is imposed on a group of people (the whole class is kept in because three people were noisy or whatever). There is a market in insurance; we can choose between insurers; and there is a strong incentive for insurers to discriminate as much as they can between individual risks. Indeed, this is precisely how Direct Line made its money - by hunting out good risks that had previously been lumped in with bad risks. However, though there are always incentives to discriminate more finely, there are also costs. A competitive market is the best way of finding out the best balance between those costs and benefits. In addition, I am not sure where your reasoning leads you. The judgement - even if it can be justified on other grounds - deals with the problem you identify by lumping women in to the collective punishment: it is discrimination to keep the class in because 27 of them behaved well and they are being treated differently from the rest of the school - so we will keep the whole school in instead.
Rob, insurers do discriminate between risky and careful drivers. If you cause an accident, your premium goes up. If you drive accident-free for several years, your premium goes down. The crude discrimination between sexes is strongest in the early years, which is when the insurer knows little about you yet, and the cost of finding out would be huge. They would have to hire an army of 'driving style assessors', the salaries of which you would pay in the form of higher insurance premiums. PS: The Economist had an article recently saying that car insurance was a lot more expensive in Italy than in Northern Europe. Is that 'collective punishment' too? I think it makes perfect sense.
Women face higher costs for Multi Car Insurance premiums following a decision by the EU to ban using gender-based pricing for financial products. Rises of up to 25% will hit women drivers while men will find payments they receive from their pension plans will decrease. The European Court of Justice in Luxembourg has ruled that using differences between men and women as a risk factor in setting premiums for car and medical insurance and pension schemes breaches EU rules on equality. This latest bureaucratic lunacy to emerge from the world's biggest insane asylum undermines the methodology traditionally used by insurers to determine premium and payment levels by using the law of probabilities.
I can't see any reason why insurance companies shouldn't be allowed to use any statistical data they can come by when it comes to determining risk. In the USA, gender is allowed to be used as a factor, but other statistical data isn't. In the end, it hurts both the consumer and the company.

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