Think of insurance as a product or service (which it is), and the idea of equal premiums for men and women makes sense. Think of it as a gambling venture (which it also is), and unisex premiums make no sense at all.
The insurance-as-product idea makes unequal premiums seem wrong on their face -- like charging women more for cough syrup or car rental or credit. In that light, insurers can be said to be discriminating against women (in health insurance), against young males (in auto insurance), against men (in life insurance).
That, in fact, is how the insurance commissioner of Massachusetts (which recently followed Montana as the second state to require unisex insurance rates) sees it. Rate differentials, he says, should be based only on "factors that are in people's control."
In other words, it's okay to charge a woman more for health insurance because she is a cigarette smoker, but not because she is a woman. It's fine to charge a youngster more for his auto insurance because he is a reckless or inexperienced driver, but not because he is 19.
But insurance is a unique product. It is, at its heart, a gamble that says: We bet you will pay us more in premiums than we'll have to pay you in benefits. If we figure the odds correctly, we make money; if we are wrong too often, we're out of business.
No one would insist that a roulette operator pay the same for a straight number bet (a 38-to-1 proposition) as for an odd-or-even bet, where the chances of winning are (roughly) one in two. In fact, the payoff is 35 times greater for the longer shot -- or, to put it the other way, the same payoff costs the odd-even player a 35-times-bigger premium.
Insurance actuaries operate along much the same lines. If a teen-ager has a much greater chance of having an accident, or a woman figures to have more or more expensive claims, the insurance "house" protects itself by demanding higher premiums.
Why does what seems ordinary common sense at the gambling table come off as a civil-rights violation in the case of insurance? The answer, I suppose, is that insurance seems more like a necessary product than a gamble and that differential insurance premiums based on group statistics sound unfair: usually unfair to women, though not always.
The imposition of unisex auto insurance rates in Montana, for example, turned out to be a boon for young men, whose premiums came down, and a burden for young women, whose rates soared. As a matter of fact, the Montana legislature voted to repeal the unisex law, only to have the repeal vetoed by the governor.
Still, the idea persists that differential rates amount to unfair discrimination -- a species of civil-rights violation.
The D.C. Council felt that way when it enacted legislation to bar insurance companies from basing insurability on the results of tests for exposure to the AIDS virus. The companies said they were willing to continue coverage for existing policyholders but insisted on the right to test (and refuse coverage at ordinary group rates for those who tested positive) for AIDS exposure.
The council wouldn't budge; it was upheld by a federal district court. But the upshot was that dozens of life and health insurers stopped writing new policies in the District. To have stayed in the city under the new rules would have been, as one insurance executive put it, like writing a fire insurance policy on a burning building.
Think of insurance as a product and the insurance companies' attitude sounds like discrimination against homosexuals, young people or women. But think of it as the gamble it is and the differential policies start to make sense.
"The issue," said Metropolitan Life's Edward T. Pocaro, "is whether insurance companies should be able to evaluate risk."
And so it seems to me. Whether it involves screening for AIDS exposure or taking into account the claims history of certain groups, it strikes me as prudent and sensible for insurers-as-gamblers to weigh the likelihood of having to deliver a payoff.
Mandatory coverage at ordinary rates may be a good deal for members of certain high-risk groups. But it is the rest of us, not the insurance companies, who will be stuck with the cost.
In insurance, as in the casinos, it's the customer who covers the house's losses.