Is it fair for car insurance companies to consider gender, age, or occupation when setting premiums?
Question posed by WalletHub representative
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Ethical Decisions 
The problem with judging what is “fair” is that fairness is in the eye of the beholder. Younger drivers may view their high premium as “unfair” because it penalizes them for something over which they have no control—their youth. Older drivers may view them as “fair” because safe drivers shouldn’t have to subsidize unsafe drivers. So we get nowhere.
Because fairness is such a vague concept, we must look to other principles. A popular one in the insurance industry is that riskier categories of drivers should pay higher premiums. But what if we find redheads to be riskier than brunettes, on the average? Should all redheads pay more? It seems reasonable to ask drivers with a history of speeding tickets to pay more, if they are riskier, but the risk principle doesn’t explain why they are different than redheads.
Another popular principle is that drivers should be penalized only for behavior over which they have control. On this view, gender should not matter, but speeding tickets should. As for age, we might argue that a driver’s low premiums in mature years compensate for high premiums in youth, and so there is no net penalty in the long run. But why should age matter in the first place?
A better place to start is the utilitarian principle: a pricing policy should maximize total benefit to all concerned. This argues for penalizing risky behavior the driver can control, such as speeding, because it can incentivize safer driving and benefit everyone. It may argue for age-based premiums, but only if the evidence shows that they encourage young people to start driving at a later age.
A utilitarian criterion can also argue against policies that the public *perceives* as unfair, such as hair color or even gender, because they may create backlash against the insurance industry and result in fewer insured drivers. This requires no judgment as to what is fair, but only as to how public opinions about fairness affect utilitarian goals.
Several conclusions follow. If there is no evidence that age-based premiums affect driving age, the industry can justify them only by showing that the public views them significantly fairer than age-neutral premiums. Higher premiums for riskier occupations may or may not reduce the number of drivers engaged in them, but even if they do. these occupations may be necessary and desirable. Think about ambulance driving, for example. On the other hand, one might argue that higher premiums are justified because other customers think it is unfair for them to subsidize the riskier occupations.
In summary, the industry’s axiom that higher risk categories should pay higher premiums is both unjustified as a general rule and fundamentally vague. It is unjustified because higher risk premiums may have no positive net effect. It is vague because it provides no guidance as to what sort of categories are legitimate. A better approach is to evaluate the utilitarian effect of pricing policies, taking into account public perceptions of legitimacy that could affect the viability of the industry.
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It seems that an analysis needs to take into account that different insurers construct their categories differently and that a consumer is free to shop around.
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