In several ways, insurance coverage is a complex industry. In one way, however, it is very easy: the money insurance companies take in from insurance buyers must produce a pool of funds adequate enough to cover all insured losses, plus the providers cost of doing market, taxes and profit.Over time, insurance providers have developed a rational system of predicting losses and setting premiums. Based on sound data about factors that increase and reduce losses, this system of risk evaluation enables insurers to calculate a premium for each driver that presents the driver with a fair share price for the losses that will be experienced by the group whose risk profile is similar.
As well, this system engenders healthy competition among insurance providers with regard to premiums. This benefits the majority of drivers-who do not fall into high risk categories-by making insurance available to them at the lowest possible rates.
Insurers seek to set premiums so that each group will pay its fair share of the cost of insured losses, expenses and taxes. Most insurance companies actively oppose efforts to force them to abandon pricing methods that are fair to insurance customers and that help insurance providers to keep their industry predictable, an important goal in any industry and an absolute matter of survival for insurance.
One of insurers' concerns is that people understand the criteria relate to loss data and not to any type of prejudice. Unfortunately, in the ongoing societal debate about these issues, insurance providers my sometimes appear to be defending social attitudes that other people find offensive or objectionable. Insurers are not defending any type of social attitude.
What they're defending is the insurance mechanism itself, which relates the cost of insurance to the hazard insured against. Cost-based pricing is based solely on actuarial data, which are completely blind to any form of social distinctions.
Insurance companies are also concerned that before supporting changes for social reasons, people understand the full implications of such changes. If gender is to be abandoned as a cost factor, for instance, people must accept that the trade-off is not between an unfair gender-related system and a fair unisex system. While it may be considered socially fair to charge young men and women drivers the same rates for ear insurance, actuarially it is unreasonable.
Younger ladies will be paying more into the insurance pool in premiums than is justified by their losses. What is really at stake, then, is not a fair system versus an unfair system, but how society chooses to define the term fair. Insurance firms believe a truly fair system is a cost-based one. Actuarial science, not social wisdom, is the backbone of the insurance market.
