Friday, December 9, 2011

A Tired Tale



For several years now, the EU has been battling with a simple decision, "Should sex be used as a predictive factor for pricing insurance products?"  The decision is a yes/no situation.  On the yes side is the insurance industry, claiming that the use of the sex parameter allows for more accurate pricing of contracts with lower risk groups paying less and higher risk groups paying more.  On the no, is those that argue that such a practice is against the EU's value of social equality.  

Financial interests have sought to make the debate about science, indicating that the quantitative difference in risk between men and women demands that the sex parameter must be used. Some, like the Mark Hoban, British Financial Secretary to the Treasury, have gone so far as to argue that because of this, the financial sector should be exempt from adhering to widespread social values and laws,
While nobody should ever be treated unfairly because of their gender, financial services providers should be allowed to make sensible decisions based on sound analysis of risk.
This particular framing of the debate is inaccurate, as the issue is not about whether or not their is a difference between the sexes but whether or not that calculated difference is just in decision making about insurance product prices.

Earlier this year the European Court of Justice decided that the answer is NO, due to values of equality.  The outcome of this, is thought to be a redistribution of costs and benefits among the two genders.  In typical insurer fashion, industry representatives have retorted with their standard myth
The core principles of risk assessment is that people in comparable situations are treated equally and those in different situations are treated differently.  If this risk-based, factual principle is not maintained, premiums will increase, coverage will decrease and some products will be withdrawn from the market.  
Many seem to allude that the result of this decision will be an aggregate increase in premiums.  That is, the total premiums collected (men +women) will increase.  Althought overall losses have not increased nor should they increase, at least not by much.  If losses are not increasing, than any increase in aggregate premium is based only on insurer's perceived risk or maybe perceived uncertainty.  The decision as to whether or not to accept insurers' perceived risk assessment can and should be open to political and moral debate.

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