However, some industry funds have chosen not to adopt different prices for different occupations. This is generally the case where the membership is dominated by a particular occupation. For example, Health Super, whose membership is mostly made up of employees in the health sector, provides death cover at the same rate for all members.
At present, a majority of industry funds provide default cover on the same terms for men and women. However, some industry funds have introduced gender-based rates for the default level of cover, which means that women will get higher cover, or cheaper premiums, than men.
Impact of genetic testing
With the rapidly improving knowledge around genetics, another factor that could impact on insurance risk is the genetic make-up of an individual. Genetic tests could provide insurers with very specific information on an individual, from which conclusions could be drawn regarding the likely impact on the insurance risk. This raises more issues than simply privacy.
The Financial Services Council, representing the life insurance industry, has issued a standard in relation to genetic testing (FSC Standard No. 11, Genetic Testing Policy). It states that insurers will not initiate any genetic tests on applicants for insurance; nor will it allow insurers to offer insurance at lower than the standard premium rates on the basis of any genetic tests (to prevent any indirect coercion to undergo a genetic test).
This standard has been established to ensure that life insurance remains available to the vast majority of people at standard premium rates.
So is genetic testing any different to having gender-based pricing? Genetic testing is a specific report on an individual, and provides details that may have an impact on likely future health outcomes (positive or negative). As such, it removes the individual from a larger homogeneous group, and creates a group of one insured life. Also, people may be unaware of their genetic profile and should not be discriminated against when applying for insurance in good faith. For these reasons, and the desire to see insurance made readily available to the majority of individuals, the industry has steered away from the use of this information.
Gender-based rates
In Australia, the Sex Discrimination Act 1984 has been established with an objective of eliminating, as far as is possible, discrimination against persons on the grounds of sex (among other things). However, it specifically exempts insurance from the scope of the legislation where there is valid actuarial or statistical data to support differential pricing. This includes past experience in relation to annuities, life insurance, accident insurance and illness insurance.
If all insurance products were made gender neutral, they would be priced based on a weighted average of the male and female rates. This would mean that, in general:
• Men would get cheaper life insurance premiums and women would pay more than at present;
• Women would get cheaper disablement premiums and men would pay more than at present; and
• Annuity products would be more costly to men than they are at present. In fact, there might be a tendency to only use the female pricing structure as the differences between male and female longevity are substantial and the insurer may be reluctant to be exposed to the risk of a higher proportion of women buying the product than has been assumed in pricing.
Australia currently suffers from severe underinsurance, which means that many families are exposed to a large financial risk upon the death of the main income earner. Any moves which cause greater uncertainty for an insurer regarding the underlying risks will lead to more conservative assumptions being used, which in turn will lead to higher premiums overall.
Gender-neutral life insurance prices expose the insurer to an additional risk – namely the male/female split of their insurance portfolio, which is difficult for them to manage except where it is large and stable (other than through other discriminatory practices!).
Discrimination when based on an individual’s gender, or other characteristic, is never “OK”. However, in the case of premium rates for insurance, where statistical evidence exists which shows that the risk varies by gender, it is entirely appropriate to have gender-based prices.
It is to be hoped that Australian legislation will continue to recognise the genuine reasons for including gender as one factor that impacts on the price of life insurance and that we will not follow the lead of the European Parliament on this matter.
Richard Weatherhead is a director of Rice Warner Actuaries – www.ricewarner.com
