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5/17/83 23

THE HIGH COST OF UNISEX INSURANCE

A case recently argued before the Su preme Court focused att76ntion on a longstanding practice of insurance companies'and pension'funds. A' woman pensioner who received $34.1ess each month:than her male-counter- parts argued that she was suffering from sexual discriminiation. Her_.,-- former employer, the State.of Arizona, countered:that@it was mepely-_ taking account of the well@-rkfiown fact that women,tend to [email protected] than men, and that spreading pensions and retiremiant annuities over a longer time period for the average woman naturai ly resulted in lower monthly payments.

At the heart of the issue is the question of whether discrimination is synonymous with any difference in treatment. Congressman John Dingell (D-Mich.) and Senator Robert Packwood (R -Ore.) aigue that it is. They have introduced bills (H.R. 100 and S. 372) to outlaw the use of sex as a factor in determining insurance rates and benefits. Either of-these bills, or the proposed Economic Equity Act (H.R..2090 and S. 888.) cpntaiin- ing si milar provisions, would have sweeping effects throughout the insurance industry. But in the name of equality,, they coulil cost some women thousands of dollars in extra premiums.

Advocates of "unisex" insurance and pension,funds advance two principal argum ents. First, whites as a group live longer than blacks. Yet insurance companies are no longer permitted @o differentiate by race in calculating premiums. Why then, they argue, differentiate by sex?

Second, supporters of the bills claim that even though th ere are differences in insurance rates associated with meln and women, insurance companies have exaggerated them. Advocates point out, for instance, that while the "average" woman may live longer than the "average" man, a specific woman may have a shorter life span. Futthermore, it is argued, the probable life span of a particular individual is determined by nongender factors--such as smoking habits, famil@ health history, general health, and recreational or occupational activities.

What supporters of the legislation overlook,is that the differences in treatment of men and women by the insurance ifidustry are by no means one-sided. Example: Women present fewer claims@,than men on their automobile insurance policies, but more on their,health insurance. This is reflected in the rates. Moreover, the differences between whites and blacks are insignificant when only insured blacks (generally middle class) are considered, rather than the whole b-lack.population.

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since life insurance annuities and pension 'fun ds, of course, lack prior knowledge about the life span of any partitular individual, they determine the probable longevity of an individual according to statisti- cally significant risk groups. From this, premiums and benefits are set. To make the system as fair as possible, many annuities and pensions attempt to assign individuals to the smallest identifiable group that has demonstrated an average life expectancy longiBr or shorter than the average. Sex is certainly a key determinant of these groups, but it is not the only one that insurance companies use. bepending on the type of insurance sought, other factors already are considered--just as advocates of unisex insurance have argued they should be.

If unisex insurance is applied to contracts currently i n force, the transition costs will be enormous, especially in,the case of pension funds. Companies will be forced to make extra pkyments to female benefi- ciaries, for which they have set aside no funds., These unfunded liabili- ties could drive smaller f u nds into bankruptcy, jeopardizing the pensions of many people--women included. In addition, all insurance premiums will have to be adjusted if the law is changed. The risk averages used would then have to be based on larger groups tha@_ included both men a nd women. Men would be forced to subsidize the health and disability insurance claims of women. Women would pay more:for life insurance policies, while men would receive less in pensiofis. According to Mavis Walters of the Insurance Services Office, the n e @ effect will be that the average woman can expect to pay several thousand dollars more over her lifetime for the typical range of insurance @olicies. The practices of insurance companies and pension iunds are not discriminatory in a prejudicial sense. If anything, they have had the opposite effect. By recognizing the differences-,in men and women as well as in smokers and nonsmokers and in accountAnts and firemen, insur- ance companies attempt to treat each customer individually, compensating for such dif ferences as sex, personal habits, occlupations.

Preventing insurance companies and pension funds from taking account of one of these factors, in this case sex, would,actually lead to a more discriminatory practice. It would force safer women drivers to sub sidize more reckless men drivers while requiring male pensioners and their families to underwrite female retirees.

A law requiring unisex insurance would introduce unfairness, not end it. It would probably increase the cost of insurance for women, not reduce it.

Catherine England Policy Analy9t

F or further information: "Women Shift Focus on Hill to Economic Equity Issues," Congressional Quarterly, April 23, 1983, pp. 781-789. William Raspberry, "It Doesn't Pay to Be a Statistic," Washington Post, April 4, 1993. "Pensions and Probabilities," Washington Post editorial, February 19, 1983. Lindley H. Clark, Jr., "Men of the World Unite! You Have a Great Deal to Lose," Wall Street Journal, May 10, 1983, p. 35.

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