Discrimination in Insurance

I was getting caught up on my reading at the gym earlier this week, and I saw this (A boy-racer’s dream?) article in the 2011-03-05 edition of The Economist. It seems the European Court of Justice ruled that effective for insurance contracts entered into after 2012-12-21, sex (gender) may not be used as a rating variable. Here in the US, most states still allow sex as a rating variable, and the arguments tend to fall to whether using it is “unfairly discriminatory”. In automobile insurance, young male drivers tend to have worse loss experience than young female drivers, and young drivers of both sexes tend to be worse than middle aged drivers. When I first moved to Massachusetts, the state mandated class plan was gender and age blind (except for a mandatory discount for the elderly). Rates for “inexperienced” drivers were higher than for the “experienced”, thus a 35 year old just learning to drive got the same rate as the new driver half his age.

I’m wondering, what are acceptable criteria or factors to use in pricing insurance? Most would say that skin color is absolutely unacceptable, but what if there are measurable correlations between skin color and risk? Clearly correlation is not causation, but to what extent should an insurer be barred from using a rating factor? When a rating factor gets banned, are rating factors that are highly correlated to the banned factor also banned, or do they become the new appropriate way to classify and rate?


Leave a Reply

Your email address will not be published. Required fields are marked *


Notify me of followup comments via e-mail. You can also subscribe without commenting.