Fair Vs. Unfair Discrimination

Unfair discrimination takes place whenever a choice revolves around a distinction that is irrelevant to offering insurance coverage. An example of this is to deny coverage based upon an arbitrary difference such as race or religion.

Insurers are constantly involved in discriminating. They continuously evaluate situations to see if they are in a position to offer insurance coverage. The companies note differences and make choices among their insurance applicants. This process is important because insurance programs are designed using assumptions on the type of persons, property and situations they wish to cover.

When an insurance company does business, it has to make decisions about the type of market it wants to serve. For example, in the car market, does it wish to insure only regular cars and drivers with pristine records or expensive sports cars and drivers with a few blemishes? In the homeowner's market, does the company wish to target very expensive homes, such as those with a value over $300,000 or might it decide to exclusively write mobile homes? Once their market niche is selected, a company has to create matching prices. What components must a company consider? Well, an insurer must charge premiums that reflect the:

• dollar amount of losses paid to all parties filing valid claims company's costs to investigate and settle claims insurer's operating expenses (including compensation to employees and agents) premiums charged by their competitors
• the legal requirements of applicable state insurance regulators

Underwriting is the next step after market selection and pricing. A company has to create and follow rules on selecting and keeping the type of business that matches its premiums. Through underwriting, an insurer must discriminate among persons and kinds of property that fit its insurance program. If a company doesn't apply their selection standards consistently, it will eventually lose the ability to do business. An easy way to determine a company's selection practices is to look at their applications. If the information is important for underwriting, it should show up on the application. This is true no matter the type of insurance or market targeted by the insurer.

Remember, the decisions made by an insurer in writing and renewing coverage must validly affect their market and prices. When the decisions are not based on these factors, then unfair discrimination takes place.

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