Equal insurance premiums for men and women across Europe

[Jaepheth]

So here's a question.

If it's wrong to ask someone to pay more because of their gender, then why is it better to ask someone to pay more because of someone else's gender?

[Big Phil]

That specific point, that many insurances are legally required, is something that should be enough to prohibit racial or sex discrimination. Without it, it would be more expensive to own a car just for being a man, regardless of ones personal conduct. I do not object to raising premiums when said man has an accident, but i do object to him paying more just due to his gender.
Now there are also a lot of insurances that are virtual necessities, such as general liablity insurance, homeowners insurance and whatnot. Now we might argue about when exactly an insurance qualfies as such - the point is that it makes little difference if they are legally required, you absolutely need them anyway. And discrimiating against a group, rather than a person, on something that is just such a basic requirement is wrong.

Should there be different rates for different types of vehicles? For example, should the driver of a high performance sportscar or a motorcycle pay the same rate as the driver of a family sedan, even though statistically the sportscar/motorcycle driver is going to get into more accidents and cost the company more money? If it's not fair to charge an 18-year old male more because of his age and gender, then logically he shouldn't be charged any more simply for driving a shiny, red Ferrari.

[Thanas]

But for things like auto insurance, homeowner's insurance, and life insurance... how do you handle a system where X's premium doubles to pay for risks taken by Y? What stops X from opting out of the system?

Maybe the fact that X, being a sensible person, needs that insurance just in case as well? Or in the specific case of auto insurance, the fact that it is legally required in many countries in order to operate or own a car?

That specific point, that many insurances are legally required, is something that should be enough to prohibit racial or sex discrimination. Without it, it would be more expensive to own a car just for being a man, regardless of ones personal conduct. I do not object to raising premiums when said man has an accident, but i do object to him paying more just due to his gender.

In an ideal world, we would all just be paying premiums based on our specific performance. However, people already do not report accidents out of fear their premiums would go up. Your solution would just create more bureaucracy.

[Psychic_Sandwich]

Should there be different rates for different types of vehicles? For example, should the driver of a high performance sportscar or a motorcycle pay the same rate as the driver of a family sedan, even though statistically the sportscar/motorcycle driver is going to get into more accidents and cost the company more money? If it's not fair to charge an 18-year old male more because of his age and gender, then logically he shouldn't be charged any more simply for driving a shiny, red Ferrari.

There's an obvious difference there, though. He has a choice about what he drives. He doesn't have a choice over his gender and age. So, I would say yes, it would be okay to have a level playing field based on gender but 'penalise' people who have flashy cars or motorcycles, because they chose to drive those things even though they presumably knew they meant higher premiums.

[D.Turtle]

Things like previous accidents are already taken into account, being, tracked, etc for car insurance, so this doesn't add anything new. So I don't understand, Thanas, your argument that tracking something like that would add undue bureaucracy, since that already is the case.

Nobody (I think) is arguing that it insurance companies should be unable to take specific things (like actions taken in the past, etc) into account for the pricing of that insurance. What this case is about, is forbidding a very specific single thing from being taken into account.

Now, what could possibly be the difference between taking into account the gender of a person and the previous behavior, the specific type of car, etc.? I'd say the difference is that a person has no influence over her gender, while that very same person is very well capable of influencing her behavior or the type of car that she is buying. So, in effect, this case means, that people can not be discriminated against for things over which they had no possibility of control. I don't see what is so bad about that.

[salm]

What is the insurance companies reason to make it more expensive for everybody? I mean, the stuff they have to pay for is not going to go up. Just because there are going to be unisex rates doesn´t mean that suddently more people are going to get sick, smash their cars or get their houses burned down. The costs is just going to be distributed differently but all in all there´s no need for the insurance companies to extort more money from their customers because there´s not going to be more stuff needing to be paid for.

[Phantasee]

There is one need: the bottom line.

[aerius]

If we did single payer insurance for everything and charged everyone the same rate, then some people will see their rates go up and others will have their rates drop. A low risk customer who currently enjoys cheap rates will get his rates jacked while a high risk person who's paying sky high rates will see his premiums drop significantly. The insurers will go through all their data and figure out the universal rate they need to charge on everyone. You probably won't like the answer they come up with.

[Phantasee]

That's single payer. Going through insurance companies? They'll probably use it as an opportunity to increase their profits by raising a little more than they need to or not dropping it as much as they can, where applicable.

[Simon_Jester]

But for things like auto insurance, homeowner's insurance, and life insurance... how do you handle a system where X's premium doubles to pay for risks taken by Y? What stops X from opting out of the system?

Maybe the fact that X, being a sensible person, needs that insurance just in case as well?

The problem is that there comes a point at which you sit down and rationally calculate that you'd be better off stuffing the money under a mattress than you would be paying the insurance premiums. Private insurance companies offer low premiums to good-risk customers for a reason; it's the only way to get them to sign up. Thus, I don't own life insurance because I have no dependents and don't expect to die any time soon. If I suddenly found myself with a wife and kids, I would be sorely tempted to still not get life insurance, especially if the premiums for me are the same as they are for a seventy year old man. I'm just not that likely to die soon.

Likewise, someone with confidence in their driving skills and a decent amount of money in the bank might simply stop paying for auto insurance except the minimum required under law.

People who don't perceive the risk they buy insurance against as being large can't be convinced to pay much money for the insurance. Thus, it is not possible to get them to voluntarily accept a system which overcharges them heavily in order to pay for the high-risk policyholders. They'll opt out.

You can, again, beat this with a national single-payer system funded by taxes. Are you willing to do that, to effectively nationalize the insurance industry and stop trying to run it on a corporate basis at all?

That specific point, that many insurances are legally required, is something that should be enough to prohibit racial or sex discrimination. Without it, it would be more expensive to own a car just for being a man, regardless of ones personal conduct. I do not object to raising premiums when said man has an accident, but i do object to him paying more just due to his gender.

I pay more for being a man; I may well pay less for being a good student, or for doing other things that reduce the risk. Because statistically, all else being equal, men do get into more accidents.

If you force my auto insurance company to charge me for insurance as if I were a fifty year old woman (calmer, more experienced, lower risk), I suspect they'd be tempted to drop me entirely, because I'm probably something like twice as likely to have accidents as she would be. At which point you'd have to force them to cover me... at which point they crank up everyone else's premiums to pay for the accidents that, statistically speaking, I and my demographic will have.

If you're willing to accept that, why not just nationalize auto insurance like it was health insurance? Eliminate the middleman.

Now there are also a lot of insurances that are virtual necessities, such as general liablity insurance, homeowners insurance and whatnot. Now we might argue about when exactly an insurance qualfies as such - the point is that it makes little difference if they are legally required, you absolutely need them anyway. And discrimiating against a group, rather than a person, on something that is just such a basic requirement is wrong.

In which case you are treating insurance as a public service- it becomes the duty of the insurance companies to provide insurance to everyone, at uniform rates.

In which case the logical thing to do is nationalize the insurance companies entirely and run everything on a single-payer basis, rather than take a for-profit corporation and demand that it run its business model into the ground while providing an essential service.

What you're looking at, with this ruling, is something similar to the monstrosity we wound up with in the US when we tried health care reform- citizens required to pay a private company for a service under rules that are stacked heavily, stacked so that the insurance companies' best strategy is to gleefully jack up prices as high as they can get away with.

What is the insurance companies reason to make it more expensive for everybody? I mean, the stuff they have to pay for is not going to go up. Just because there are going to be unisex rates doesn´t mean that suddently more people are going to get sick, smash their cars or get their houses burned down. The costs is just going to be distributed differently but all in all there´s no need for the insurance companies to extort more money from their customers because there´s not going to be more stuff needing to be paid for.

Suddenly, they can't charge their highest-risk customers extra.

Simplistic case. Suppose the insurance company has 100 customers, fifty 'high risk' and fifty 'low risk.' High risk customers have a 1% chance of costing the company 10000$ each year (statistically, the company loses 100$ a year per high risk person). Low risk customers have a 0.5% chance of costing the company 10000$ each year: 50$ a year.

If you have 100 customers split 50/50, you make 7500$ in payouts a year. There are unavoidable overhead costs for running the company, say 2500$, so you need 10000$ a year in income just to keep afloat.

Suppose, for example, you charge high-risk customers 120$ a year, and low-risk customers 80$ a year. That adds up to 10000$ in income. High-risk customers pay 120$ a year for a 1000$ payoff that is 1% likely to happen- not great, but not so bad. The extra security is worth the money. Low-risk customers pay 80$ a year for a 1000$ payoff that is 0.5% likely to happen- again, not great, you pay 80$ a year for (on average) a 50$ payoff. But you're paying for peace of mind, so it's not so bad.

Now, someone rules that you can't charge high-risk and low-risk customers differently because that would be discrimination. You must divide your 10000$ a year minimum income evenly among 100 people, charging each of them 100$ a year.

For the high-risk customers, this sounds like a good deal. But what about the low-risk customers? They're now paying 100$ a year for the privilege of a 0.5% shot at getting 10000$. It's quite likely that some of them will decide it's not worth it and abandon the insurance program- accept policies that offer lower coverage at lower prices, or choose to be uninsured.

What happens if, say, 20 of the 50 low-risk customers leave? Now you have only 80 remaining customers. You still need that 10000$ a year income. So you have to charge everyone 125$ a year. Suddenly, even the high-risk customers are paying more than they used to... and the low-risk customers have an even higher incentive to leave. You risk ending up in a vicious cycle, where the only people still bothering with the insurance are those most likely to need it... which means you must charge exorbitant fees to stay in business.

[salm]

Simplistic case. Suppose the insurance company has 100 customers, fifty 'high risk' and fifty 'low risk.' High risk customers have a 1% chance of costing the company 10000$ each year (statistically, the company loses 100$ a year per high risk person). Low risk customers have a 0.5% chance of costing the company 10000$ each year: 50$ a year.

If you have 100 customers split 50/50, you make 7500$ in payouts a year. There are unavoidable overhead costs for running the company, say 2500$, so you need 10000$ a year in income just to keep afloat.

Suppose, for example, you charge high-risk customers 120$ a year, and low-risk customers 80$ a year. That adds up to 10000$ in income. High-risk customers pay 120$ a year for a 1000$ payoff that is 1% likely to happen- not great, but not so bad. The extra security is worth the money. Low-risk customers pay 80$ a year for a 1000$ payoff that is 0.5% likely to happen- again, not great, you pay 80$ a year for (on average) a 50$ payoff. But you're paying for peace of mind, so it's not so bad.

Now, someone rules that you can't charge high-risk and low-risk customers differently because that would be discrimination. You must divide your 10000$ a year minimum income evenly among 100 people, charging each of them 100$ a year.

For the high-risk customers, this sounds like a good deal. But what about the low-risk customers? They're now paying 100$ a year for the privilege of a 0.5% shot at getting 10000$. It's quite likely that some of them will decide it's not worth it and abandon the insurance program- accept policies that offer lower coverage at lower prices, or choose to be uninsured.

What happens if, say, 20 of the 50 low-risk customers leave? Now you have only 80 remaining customers. You still need that 10000$ a year income. So you have to charge everyone 125$ a year. Suddenly, even the high-risk customers are paying more than they used to... and the low-risk customers have an even higher incentive to leave. You risk ending up in a vicious cycle, where the only people still bothering with the insurance are those most likely to need it... which means you must charge exorbitant fees to stay in business.

And you don´t think the low risk people that would leave because of increased cost would be balanced by more high risk people who are now willing to get insurance due to reduced cost for them but weren´t insured at all before because of the price?

[Psychic_Sandwich]

Adding more and more high risk customers, I think, would still produce an upward trend in prices, at least to the level you were originally charging. You could still, theoretically, end up with the only people buying insurance that isn't legally mandated being high risk people, and everybody else stuffing their money in mattresses. I don't think it would actually go that far, but that presumably depends on how much fees would rise. If it turns out to be cheaper to just save up the money you put into your premiums, then people will do it. It depends on what the insurance is, I suppose; health insurance is an obvious one where that isn't really possible, but Europe has national healthcare systems that are either funded through taxes or mandatory health insurance, so it's not an issue. I think car insurance is more or less mandatory across the EU as well. It's stuff like life insurance that would presumably feel any negative effects.

[Lancer]

Simplistic case. Suppose the insurance company has 100 customers, fifty 'high risk' and fifty 'low risk.' High risk customers have a 1% chance of costing the company 10000$ each year (statistically, the company loses 100$ a year per high risk person). Low risk customers have a 0.5% chance of costing the company 10000$ each year: 50$ a year.

If you have 100 customers split 50/50, you make 7500$ in payouts a year. There are unavoidable overhead costs for running the company, say 2500$, so you need 10000$ a year in income just to keep afloat.

Suppose, for example, you charge high-risk customers 120$ a year, and low-risk customers 80$ a year. That adds up to 10000$ in income. High-risk customers pay 120$ a year for a 1000$ payoff that is 1% likely to happen- not great, but not so bad. The extra security is worth the money. Low-risk customers pay 80$ a year for a 1000$ payoff that is 0.5% likely to happen- again, not great, you pay 80$ a year for (on average) a 50$ payoff. But you're paying for peace of mind, so it's not so bad.

Now, someone rules that you can't charge high-risk and low-risk customers differently because that would be discrimination. You must divide your 10000$ a year minimum income evenly among 100 people, charging each of them 100$ a year.

For the high-risk customers, this sounds like a good deal. But what about the low-risk customers? They're now paying 100$ a year for the privilege of a 0.5% shot at getting 10000$. It's quite likely that some of them will decide it's not worth it and abandon the insurance program- accept policies that offer lower coverage at lower prices, or choose to be uninsured.

What happens if, say, 20 of the 50 low-risk customers leave? Now you have only 80 remaining customers. You still need that 10000$ a year income. So you have to charge everyone 125$ a year. Suddenly, even the high-risk customers are paying more than they used to... and the low-risk customers have an even higher incentive to leave. You risk ending up in a vicious cycle, where the only people still bothering with the insurance are those most likely to need it... which means you must charge exorbitant fees to stay in business.

And you don´t think the low risk people that would leave because of increased cost would be balanced by more high risk people who are now willing to get insurance due to reduced cost for them but weren´t insured at all before because of the price?

Adding more high-risk customers skews the cost of providing insurance even higher, meaning that the insurance company will still either have to raise rates or stop providing services. Simon's model is a bit simplistic. Assuming a fixed $2,500 overhead and adding the expected payouts, the company would actually need to charge a premium of $112.50, not $125 (as losing the 20 low-risk customers reduces both the revenue earned and the payouts the company must make).

However, replacing the 20 low-risk customers who left with 20 high-risk customers that decided to opt in as you suggested, the insurance company can expect to make $8,500 in payouts annually. Remember to add in $2,500 to cover overhead, and you've just pushed premiums under a single-price scheme to $110 per person. For a low-risk customer, that's a 37.5% increase in the premiums, and greater than double the expected cost of what they would incur on their own.

You'd have to bring in risk-aversion into play to determine how many low-risk customers remain in that scheme, but once you get to the point that only 10 low-risk customers remain (with the rest replaced by high-risk customers as you propose), then the high-risk customers are already paying the same premium they were before the switch ($120), while 40 out of 50 of the initial low-risk customers have decided to forgo insurance due to cost, and the remaining 10 are significantly worse off because their rates have increased by 50%.

[salm]

Wouldn´t more high risk people join in than low risk people would drop out leaving the company with more customers? i mean, a high risk person is interested more in insurance than a low risk person. So if 20 low risk people dropped out due to increased costs more than 20 high risk people would join due to lowered costs. This would provide the insurance company with more customers.

[Simon_Jester]

And you don´t think the low risk people that would leave because of increased cost would be balanced by more high risk people who are now willing to get insurance due to reduced cost for them but weren´t insured at all before because of the price?

The price doesn't stay low, because the cost of insurance doesn't stay low when the insurance company is having to cover larger numbers of high-risk policyholders, and smaller numbers of low-risk policyholders.

Let's look at what would happen if we replaced the 50 low risk people in my example with 150 high risk people. The insurance company now has 200 clients, each with a 1% chance of costing the company 10000$ a year. Statistically, they expect to pay out twice a year, and therefore need 20000$ a year in income to cover that.

In addition,, they still have overhead costs from running the company. It is not unreasonable to assume that when your client base doubles, your overhead costs double, in which case you need 25000$ a year... 125$ per client.***

Replacing low-risk clients with high-risk clients is worse than replacing them with no one at all, as far as keeping premiums under control goes. The only way to keep premiums under control when you are mandated (literally, commanded) to keep a flat rate for everyone is to force everyone in the country to pay, even against their will. Doing this with private insurance gives you Obamacare, which is an inferior choice, or normal single-payer health care, which is a superior choice.

By legislating flat insurance rates, the European courts risk creating a situation where the only way to keep private insurance around is to do what the congressional Democrats tried to do in the US and demand that everyone buy insurance whether they need it or not.
__________

*And overhead costs.
**Actually they need more than this, at least for a while, to build up a margin of error in case four of their clients have accidents in the same year, but over the long run they're OK with that level of income.
***Actually, based on this, in the second half of my previous example, the rate should be 106$ a year or so; I did the math too simplistically before.
__________

EDIT:
Remember, to an insurance company, each customer is both an asset and a liability. The level of risk the client presents decides the ratio of asset to liabililty. The only way to insure high-risk clients is either to charge them in line with the risks they present (which can easily be thousands of dollars a year), or to subsidize them at the expense of a large number of lower-risk people.

[salm]

Ah, well, ok, sounds plausible.

[Simon_Jester]

So how do you feel about this, salm?

Would you rather see the insurance industry nationalized (all insurance done on a single-payer system)?

Made into a system that everyone is mandated to buy into (Obamacare style)?

Or kept private, knowing that this is going to result in higher premiums for low-risk customers, and therefore higher premiums for everyone when the low-risk customers start leaving the system?

I can't see any other options if the courts are going to mandate strict equality in insurance premiums. If they make an exception for age, the system might be able to survive more or less unchanged... but how will they justify barring sex discrimination and not age discrimination?

[D.Turtle]

Simon_Jester, you are attacking a straw-man. The court did not say that every insurance has to offer one price, and one price only to everyone out there, regardless of any risk factors. Instead, they have said that there is one (additional) factor that is not allowed to be taken into consideration for calculating the premium.

All your screeching about this destroying the insurance industry (or leaving only the possibility of nationalizing it) is simply overblown.

[salm]

So how do you feel about this, salm?

Would you rather see the insurance industry nationalized (all insurance done on a single-payer system)?

Made into a system that everyone is mandated to buy into (Obamacare style)?

Or kept private, knowing that this is going to result in higher premiums for low-risk customers, and therefore higher premiums for everyone when the low-risk customers start leaving the system?

I can't see any other options if the courts are going to mandate strict equality in insurance premiums. If they make an exception for age, the system might be able to survive more or less unchanged... but how will they justify barring sex discrimination and not age discrimination?

To be honest, i have no idea. I have too little in depth knowledge about this whole matter to form a valuable opinion.

[Simon_Jester]

Simon_Jester, you are attacking a straw-man. The court did not say that every insurance has to offer one price, and one price only to everyone out there, regardless of any risk factors. Instead, they have said that there is one (additional) factor that is not allowed to be taken into consideration for calculating the premium.

All your screeching about this destroying the insurance industry (or leaving only the possibility of nationalizing it) is simply overblown.

Honestly, I'd be tempted to favor nationalizing the insurance industry, or at least the part that handles 'personal' insurance (health and life, especially), rather than property insurance. I'm not opposed to the idea of doing it, and would find the idea interesting were it done in Europe.


What concerns me isn't so much barring sex discrimination in calculation of insurance premiums. It's that I don't see how, once they bar that, they can avoid barring age discrimination. Age discrimination is illegal too, and you have no more control over your age than you do over your sex. But prohibiting insurance companies from factoring in age would have hugeeffects on the industry, because age is the biggest single variable deciding how much you pay in (for example) auto and life insurance.

Being forced to charge a forty year old man and a forty year old woman the same premiums will not gut the industry's business model, though it won't do them any favors. Being forced to charge a twenty year old man and a seventy year old woman the same premiums could easily cause a much bigger problem.

If you have reasons to believe that the European Court of Justice will not ban age discrimination in insurance premiums, aside from "that would be silly," I would like to hear them. If the only reason against banning it is "that would be silly," then I can only hope the Court decides not to be silly in the name of equality.

But I think that this does need to be pointed out: this is not a pure and unadulterated "triumph of equality" in the sense that, say, legalization of gay marriage would be. There is a real, very well defined cost that will be paid by a large number of people when insurance premiums get leveled across the population. It's a deal with winners and losers, and the losers aren't just a bunch of frustrated bigots who've lost an opportunity to be bigoted.

[Serafina]

But I think that this does need to be pointed out: this is not a pure and unadulterated "triumph of equality" in the sense that, say, legalization of gay marriage would be. There is a real, very well defined cost that will be paid by a large number of people when insurance premiums get leveled across the population. It's a deal with winners and losers, and the losers aren't just a bunch of frustrated bigots who've lost an opportunity to be bigoted.

Simon, lot's of equality improvements had winners and losers, at least in a financial way. Gay marriage might not be an example (the only financial loss here is that a small segment of the population will pay less taxes).
But equality for women or due to race is a good example, especially when talking about the job market. Not only did it endager a lot of white, male (or such) simply by increasing competition, there were also a number of arguments that claimed that the minorty in question would be worse off in employment, since their inequality offered an incentive for employment. There were also a lot of claims that jobs in general were endangered, since employers costs in general would go up either due to increased wages or complications due to the equality.

You were dealing with "winners and losers" there as well. The financial arguments had, as far as i can see, about as much merit as they have here (after all, gender is only one of many factors).

We are talking about a very large group who can not help how they are classified - they can not change it, it did not happen due to any of their actions. Discrimination unto such a group must have a serious argument behind it - financial interets are no such argument, even when dealing with a purely financial matter.

[Big Phil]

Discrimination unto such a group must have a serious argument behind it - financial interets are no such argument, even when dealing with a purely financial matter.

Why aren't financial interest a serious argument?

[Simon_Jester]

But I think that this does need to be pointed out: this is not a pure and unadulterated "triumph of equality" in the sense that, say, legalization of gay marriage would be. There is a real, very well defined cost that will be paid by a large number of people when insurance premiums get leveled across the population. It's a deal with winners and losers, and the losers aren't just a bunch of frustrated bigots who've lost an opportunity to be bigoted.

Simon, lot's of equality improvements had winners and losers, at least in a financial way. Gay marriage might not be an example (the only financial loss here is that a small segment of the population will pay less taxes).

But equality for women or due to race is a good example, especially when talking about the job market. Not only did it endager a lot of white, male (or such) simply by increasing competition, there were also a number of arguments that claimed that the minorty in question would be worse off in employment, since their inequality offered an incentive for employment. There were also a lot of claims that jobs in general were endangered, since employers costs in general would go up either due to increased wages or complications due to the equality.

You were dealing with "winners and losers" there as well. The financial arguments had, as far as i can see, about as much merit as they have here (after all, gender is only one of many factors).

We are talking about a very large group who can not help how they are classified - they can not change it, it did not happen due to any of their actions. Discrimination unto such a group must have a serious argument behind it - financial interets are no such argument, even when dealing with a purely financial matter.

Look, I'm trying to get practical answers here- even when addressing questions about basic rights we have to have practical answers, even if the practical answer is something like "and whatever it is you're worrying about can go die in a fire you bigoted jackass, we'd be better off without it."

You say that "We are talking about a very large group who can not help how they are classified - they can not change it, it did not happen due to any of their actions. Discrimination unto such a group must have a serious argument behind it - financial interets are no such argument, even when dealing with a purely financial matter."

So I ask you, Serafina: does this argument extend to age discrimination?

Age affects a very large group, and you cannot control or change your age, nor does age or lack thereof happen to you because of anything you do (aside from "stay alive.") So, do you believe that the principle of nondiscrimination should extend to age, when it comes to calculating insurance premiums?

If so, we will have to reorganize the insurance industry accordingly, as it will not be able to function on its current terms without age discrimination. I can think of a number of ways to do this. Do you like any of them? Can you propose any alternatives? Do you think the question is irrelevant? More than one of the above?