Gender discrimination and insurance, loss coverage
The EU's ban on gender discrimination in insurance from the end of 2012 will have costs as well as benefits. Neither banning nor allowing gender discrimination seems to me egregious public policy. I therefore regarded this area as a low priority for reform.
Be that as it may, the concept of loss coverage is relevant to understanding and measuring the effects of the ruling. Insurers and actuaries frequently claim that restrictions on discrimination will lead to adverse selection: that is, more insurance will be bought by the higher-risk gender, and less by the lower-risk gender, and the total number of policies sold may fall.
But this so-called 'adverse' selection is not necessarily adverse. A fall in numbers insured can be consistent with a higher number of losses compensated by insurance, if more of the 'right' people - that is, the higher risks - buy insurance.
In other words, a fall in numbers insured can be consistent with higher loss coverage.
More on gender discrimination in insurance:
- Gender equality and risk
My article in The Actuary (March 2011), written shortly before the European Court's ruling.
- HM Treasury impact assessment
My response (Feb 2012) to HM Treasury's consultation on their impact assessment of the ban on gender classification.
- Some novel perspectives on risk classification
(Geneva Papers on Risk & Insurance, 2007)
Pages 22 to 23 of this article explain the conflict between insurance ideology and legal concepts of gender equality. Succinctly, the law reflects a common social opinion by treating statistical discrimination per se as offensive. The problem is not (as insurers often allege) that critics do not understand the principle; the problem is that they do understand, and recognise the insurers' ideology as one which they explicitly reject. pdf (28 pages)
More on loss coverage:
- Loss coverage as a public policy objective for risk classification schemes
(Journal of Risk and Insurance, 2008)
Why insurance may sometimes work better with less risk classification (longer version, with simulations) pdf (21 pages)
- Demand elasticity, risk classification and loss
coverage: when can community rating work?
(ASTIN Bulletin, 2009)
Why some insurance markets may work reasonably well under community rating pdf (25 pages)