Insurance is based in discrimination. Risk is priced according to the likelihood of occurrence, based on experience. An extreme example: Indiana Jones, clinging perilously to the top of a precipice by his fingernails, decides to take out life insurance. Should his premium be the same as that of a nonsmoking accountant living quietly in the suburbs? Of course it shouldn't. The risk Indy is asking his carrier to assume is not the same as the risk the accountant presents.
Any fool knows that, you're thinking, and you're wrong. On both sides of the Atlantic, countries representing more than 75 percent of all covered risks have legislated against charging by the risk, and demand instead charging by the person, regardless of the risk involved.
In the United States, President Obama's health law denied insurers the ability to charge patients with pre-existing conditions more than the healthy.
The European Court of Justice, an overblown body if there ever was one, has ruled that insurers may no longer link risk to gender. Young women will henceforth pay more for auto insurance, despite being better risks than young men; female pensioners' benefits will be reduced to match those of men, despite the fact that females live longer.
To the reasonable man invoked as a standard in legal matters, these laws are absurd. Insurance and reinsurance companies are the bedrock of the financial system. Carrying out social engineering by dictating their business models cannot be a good idea. These companies largely came through the financial crash in good shape. Why hobble them now?
Why indeed. The cause of these ill-considered policies is the overriding modern need for "diversity". Because discrimination for no better reason than religion or birthplace or skin color is abhorrent, we have declared that no discrimination of any sort, no matter how minor or sensible, shall stand. No one may be treated differently from anyone else in any arena.
Nothing is safe from the dictates of the politically correct, who have amplified the basic, decent meaning of fighting discrimination into a form of underwriting Stalinism.
If insurers cannot charge Indy more than the accountant to cover the risk, where will this lead?
In both cases cited above, the companies quickly concluded that they would have to raise premiums on the best risks to match premiums on the worst. Any other course would be economic folly, of course. If the company fails, no one wins.
Insurance companies will now have to face criticism as they follow the illogic of pandering politicians. There may be only one way out. Like dissatisfied diners, they may take the path open to all in a free economy: withdrawal of custom, or in this case, placing the business in runoff and changing the company's mission to a model that is less ridiculously regulated.
At the age of 325, insurance is dead, done in by good intentions. RIP.
ROGER CROMBIE is a London-based columnist for Risk & Insurance®
May 1, 2011
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