ELIMINATING GENDER IN INSURANCE

Massachusetts may be on the verge of becoming the first industrial state in the nation to eliminate gender as a factor in the pricing of insurance.

Legislators and insurers across the country are keeping a watchful eye on the Massachusetts legislature, where a unisex insurance bill may soon be passed, setting a precedent for the rest of the nation.The question of whether men and women should be charged equal rates for equal insurance coverage has been a frequent point of debate in recent years. Fourteen state legislatures and the District of Columbia considered unisex rates in 1986, with Massachusetts moving closest to passage of a bill.

In July, the Massachusetts House amended and overwhelmingly passed (126-10) a unisex bill, which has since moved favorably through two key Senate committees. Now, with the Senate in informal session through Jan. 7, the bill could be voted on at any time.

John Hancock, a proponent of unisex rates for some time now, has parted with the rest of the insurance industry in its home state by supporting the amended bill.

We believe that unisex pricing should be treated as a social issue, and cite a 1983 U.S. Supreme Court decision that endorses this perspective. Other insurers, however, insist it's an economic issue, that men and women should rightfully be charged different premiums because of statistical differences in male and female longevity and frequency of hospitalization.

Although insurers have used gender for decades as an underwriting classification - in my opinion, justifiably - the U.S. Supreme Court already has reduced the unisex issue from an economic debate to a matter of social policy with its Norris decision. In Norris vs. Arizona Governing Committee, the court ruled that future contributions to employer-sponsored retirement

plans must provide equal monthly pension benefit payments to men and women regardless of differences in average longevity.

In 1982, Montana became the first state to pass a life and health insurance unisex law. With similar action in Massachusetts - a heavily populated state with more industry and commerce and a significant number of home-based life insurance companies - a strong signal would be sent to other major states that, as a matter of social policy, sex is not an appropriate criterion for pricing insurance.

The other states that have considered unisex rates are California, Hawaii, Illinois, Iowa, Maryland, Michigan, Missouri, New York, Pennsylvania, Rhode Island, South Carolina (auto only), Washington and West Virginia.

John Hancock has long believed that converting to a unisex system that is fair to both consumers and insurers requires a cooperative effort between legislators and representatives of the industry.

We support the removal of gender-based insurance rates, provided it does not create undue hardships on our existing policyholders or place insurance firms at a competitive disadvantage. In our opinion, Massachusetts' amended bill achieves those goals and would make a fine model for other states.

First, the amended bill is prospective. It applies only to policies sold after the law is in place. The original bill was retroactive, intruding on existing contractual relationships by requiring that all insurance premiums be collected on a unisex basis from the effective date of legislation.

It is difficult to imagine customers accepting price increases on policies they purchased with contractually guaranteed fixed rates. It is possible, in any case, that such retroactivity would have been found unconstitutional by the courts.

Second, the amended bill provides a 12-month implementation period. The original bill would have taken effect 90 days after enactment, an unrealistically short period to establish unisex prices, recalculate insurance benefits, print new rate book materials, prepare prospectuses, file amended insurance contracts for sale in Massachusetts, change computer programs and reorganize other systems and procedures. Much of this work cannot be done until the final form of a unisex law is known.

Third, the amended bill is not extraterritorial, so it applies only to policies purchased by Massachusetts residents. The original bill required Massachusetts-based companies to charge unisex rates wherever they sell insurance, not just within the state. This would have placed companies like Hancock at a competitive disadvantage in non-unisex states.

Without these three major amendments, the cost to John Hancock and its policyholders was estimated at $20 million, or $200 million nationwide, assuming the company were required to charge unisex rates in all states. Losses suffered by some of the smaller companies in Massachusetts potentially could have been severely damaging.

All negative aspects of the original bill have been removed, however. What remains is a socially relevant bill that places no insurer in a competitive quandary. The impact on insureds is moderate.

For example: A 35-year-old with a John Hancock whole life insurance policy ($50,000 death benefit, paid up at age 85) currently pays an annual premium of $760.50 (male rate) or $707.00 (female rate). The unisex cost of this policy would be the midpoint, or $733.75. This translates to a premium increase of $26.75 for women, less than a 4 percent change.

To put this in perspective: A smoker would pay $46.75 more than a non- smoker. That's more than a 6 percent difference, or about twice the unisex differential.

Simplified, this means that unisex will not bring appreciable rate changes, and it certainly isn't going to put an insurer out of business. I don't understand how any company can claim a competitive advantage or disadvantage if well all play by the same rules.

Of course, the aspect of this bill that many seem to have forgotten is that women would witness rate decreases on individual annuities and individual major medical plans. Most women, married or single, will find that the net cost of their insurance portfolios will remain the same.

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