Grade A Material

In the absence of perfect information, insurers charge premiums according to classes of risks rather than individual risks.

When I was a child, I couldn't wait to get a car. I didn't really know much about bills and car insurance, but I soon would. Ever since I have started paying for my car insurance, I have hated it. Insurance for a single young male under twenty-three years old, with a sports car is rather expensive. In the beginning, Shelter insurance charged me $600 quarterly. Fortunately, there were various premium discounts:

• After I took drivers education, it went down fifty dollars to $550. The insurance company figured if I had a little bit more knowledge than the people that didn't take the class, I deserved a discount. I would be less likely to get into a car accident if I had more knowledge than the other guy.
• The insurance company also gives you a discount if you make good grades. If I kept above a B average I got a fifty-dollar discount. That made it an even five hundred dollars. So I kept my grades up so I wouldn't have to pay as much for insurance. The insurance company figures if you are studying at home you won't be out on the street where accidents happen.

The one thing that I can't change is the fact that I am a male. Males have the highest percentage of wrecks on the road today. Most men like to go fast and disregard traffic laws. So they are charged a higher premium for being young and unmarried. It might seem to be unfair to those men who are careful drivers. But this so-called statistical discrimination based on gender and age as proxy variables allows the company to make an educated guess on which customers should pay higher premium in the absence of perfect information.

And if I ever get into an accident, my insurance premium will surely be adjusted upwards accordingly.