Why Age Matters for Young and Old Drivers

Abstract

The inclusion of age in the design and distribution of auto insurance captures real differences among prospective insureds. The best solutions to reducing the importance of age in auto insurance remain outside the realm of insurance. The reliance on age as an underwriting variable can be decreased through better assessments of fitness to drive and through the implementation of changes that increase road safety for all road users. In Canada, both the frequency and severity of auto accidents are highly correlated with age. It appears that using insurance scores in automobile insurance might allow insurers to rely less heavily on age as a proxy for driver risk. However, insurance scores face two large hurdles before they can supplant age in the rating and underwriting processes of insurance in Canada.