WHAT'S THE first thing that comes to mind when you hear the word "sex"? Insurance, right? Well, maybe not, unless you're an actuary. But if you are a member of that profession, you've probably been spending a lot of time lately wondering what Congress and/or the courts are likely to do about the time honored classification system used by the insurance industry to set rates.

Here's the problem: women, as a class, live longer than men. Young female drivers have fewer automobile accidents than their brothers. Women under 55 run up more medical bills than men, but after that age, men have larger bills. All this data is taken into consideration when insurers set rates. Thus, for example, teen-age girls pay less for auto insurance and, because they live longer, women pay less for life insurance. But pension protection costs more for females simply because, as a group, women can be predicted to collect pensions for a longer period of time than their male co-workers. Many employers do provide gender-neutral pensions, but others simply make equal contributions for male and female workers, which buys a smaller benefit for women. Is it fair to take these differentials into account when setting insurance rates?

Insurers will tell you that it's not only fair, it's basic to operation of the industry. All risks are categorized. Wood buildings, for example, cost more to insure than brick ones. A 55-year-old has to pay a lot more for life insurance than a 30-year-old. Non- smokers get a discount from most companies, but test pilots are much more likely to die young than librarians. It is the nature of their business, say the actuaries, to determine probabilities and classify risks, and it is a statistically demonstrable fact that women, as a group, outlive men as a group.

Many women, however, see the system as basically unfair. They point out that insurers ignore some proven actuarial differences for reasons of social justice. Blacks, for example, do not on average live as long as whites; most Mormons live longer than most Catholics. Yet neither race nor religion is taken into consideration when setting life insurance or pension rates. Shouldn't gender be placed in the same category of characteristics we ignore for reasons of public policy?

The courts have been considering a series of cases involving unequal pensions for men and women. There are conflicting decisions in the lower courts, and the Supreme Court has agreed to settle the question this term. But even if the court sanctions gender-based rates, Congress may still outlaw them. This is relatively simple to do in the case of auto insurance, for example, because the rates can be adjusted when the contract expires at the end of six months or a year. But adjusting pension benefits is much more complicated and would, if made retroactive, involve enormous unfunded liabilities. Even if the law were written to apply only to persons retiring after the date of enactment, pension experts estimate that insurers and employers would have to pay out $2 billion a year in benefits that had been unanticipated when the premiums were set.

More important to the average taxpayer is the situation of public employee plans. New York state officials have estimated that complying with such a law would cost the taxpayers of their state between $1.9 and $2.1 billion a year. None of this is insured by private carriers; it would simply be passed on to the taxpayer. Congress can avoid these staggering unfunded liabilities by making any such law truly prospective, i.e., pensions earned--as distinguished from pensions paid--after the date of enactment will have to be sex-neutral.

If they choose not to make this distinction, lawmakers must face squarely the fact that in righting what they consider to be a social injustice, they are passing on tremendous costs to private industry and to state and local taxpayers.