Discrimination exemption for insurance companies?

Man I've been waiting for a forum like this. Thanks WebSlave!!


Over a year ago when I quit my day job and became self employed, I was faced with the task of finding health insurance for my wife and I. It's basically a necessity of life any more, especially when you start racking up the years. Boy, was that an eye opener! But I don't understand it at all.

How come there are federal, state, and local laws specifically prohibiting the discrimination against race, sex, creed, religion, age, etc., etc., yet this does not apply to insurance agencies. Take a look at their applications and rates. You will pay a different rate based on how old you are, what sex you are, and where you live (which census demographic data can pretty much tell you this).

Yet if I were to offer a job to someone, and specify that that person must be a white male between 18 and 25, I would have riots in my driveway. Yet what is the difference? The insurance companies can claim that their rates are based on the likelihood of certain classes of people being shown to cost them more money. Well, as an employer, wouldn't that hold true as well? Older people will likely be out sick more. Males will generally not take maternity leave, and are preferred to have around if I may have some heavy lifting to be done. And I just may not like having Peruvians working for me, so I wouldn't want to hire them (this is just a wild example by the way, I really have nothing against people from Peru!).

So how do the insurance companies get away with it? Why should I have to pay more for a premium based on criteria that there are laws on the books stating emphatically that companies specifically can not use in a discriminatory manner?

Just REAL curious about this.

Well, as an insurance broker, I guess this is where I get to answer YOUR question for a change, Rich! Hehehe

It all boils down to the Constitution. The Enumerated powers delegated to the Congress include the power to regulate interstate commerce. Now, no one ever really defined what that was, but over a period of time, Congress took it upon itself to say that ANYTHING that could affect the commerce in one state by way of the actions of another state was fair game for Congress to be rule over. This is, by the way, how we got our interstate highway system, and how the Civil Rights Act of 1964 was justified by the courts.

This means that Congress has taken it upon itself to regulate what is, and what is not allowable forms of discrimination. You cannot discriminate in the areas specified (age, sex, religion, etc.), unless, of course, it suits Congress to allow discrimination (like forbidding child labor and setting the COMPLETELY arbitrary age of sixteen for legal employment in most cases). Therein lies the problem when the inconsistencies are noted: Congress is in charge.

So, the insurance industry is allowed to discriminate for and against certain classes of people simply because Congress has allowed it to do so. Oh, they justify it all by saying that everything is based solely upon actuarial charts, but it is discriminatory, nonetheless. Here are some unique ways in which the insurance industry legally discriminates:

1. Men pay higher life insurance premiums, as a rule. Why? Because they die sooner, and the ins. co. has to get its premiums up front.

2. Women pay higher health insurance rates when younger (because they get pregnant) and lower rates as they age (again, they live longer and healthier than men).

3. Boys have always paid higher auto insurance rates (they've statistically had more severe accidents in greater numbers than girls), but this is changing due to the crazy way girls tend to drive these days (ain't equal rights grand?).

4. Older people pay more premiums for everything, because they'll use it all unless they die sooner rather than later.

5. The younger a person is, the more he's likely to pay for disability insurance, because if he IS disabled, he'll draw the benefits for a longer time till he's 65.

6. The more dangerous your hobbies are, the more you'll pay for disability insurance (amatuer skydivers pay WAY more than amateur librarians!).

There are ways in which the ins. co. cannot discriminate, however. For example, it is illegal to ask of a person's sexual preferrences when selling life insurance. Why? Because gays would be seleceted out for "other reasons," when the true reason is that AIDS costs money, and they would not run the risk of writing anyone in a "high risk" group.

So, why does Congress allow this to occur? Because if it didn't the insurance industry would fall flat in a matter of years. If companies could not raise premiums to account for probabilities based on customer classes, if they could not deselect applicants based on actuarial tables, the bottom would literally fall out of the financial markets.

Everyone would pay the highest rates possible, because the insurance companies WOULD NOT take a loss by guessing who was acceptable and who was not. When the overall rates went up, the healthiest people would drop out of the plans and either self-insure or join a policyholder-owned mutual company that is outside of Congressional authority. This would leave only the most likely users of the insurance benefits on the policy rolls. The rates go up again to compensate the losses, and more people drop out. The cycle continues until everyone is on their own, and the insurance companies have ceased to exist. They cannot be forced to sell insurance, and they will not do it at a loss.

The reason this is so serious is because all insurance companies are interrelated. You may get your auto insurance from Allstate, but they also sell homeowners insurance in Florida (hurricanes killed Allstate there a few years ago), health insurance in California, and commercial insurance in New York City (the events of 9-11 have been rippling through the entire insurance industry in every conceivable aspect!). If insurance companies cease to exist, then businesses can no longer get insurance for their buildings, inventories, or product liability. If businesses cannot protect themselves from our litigious society, they cannot survive for long. Don't even get me STARTED on mal-practice insurance!

The only other option to the system we currently have, is to go down the path that leads to governmental owned and controlled insurance. Given the terrors of Medicare and Medicaid, I don't think anyone really wants that to happen.

So, why does Congress let it occur and be completely inconsistent with its own laws? Because they have absolutely no choice in the matter, unless they want to try to override the current financial system and replace it with a governmentally controlled one. Uh . . .No thanks!

Sorry this was so long and boring! You should have to actually DO my job! Now THAT'S boring!!!!

:Puke:insurance

Hi Guys!
I'll have to agree with you Rich, why, why, why...? Why is it that you pay insurance and carry the coverage you need, then when it's time for a claim, trying to get money from them is like pulling teeth from a baby! I'm not saying this is always the case, but most of the time it is.
I've been self-employed for the better part of 10 years and have had to carry liability insurance for my company, coverage for my tools and equipment, bumped up liability on my work trucks (to satisfy builders' (that I do work for) insurance companies, disability for myself (will explain later), and the greatly dreaded health insurance for me and my family. It seems almost every year, one insurance or the other is raising their rates for one reason or another. Even with no claims, they come back to say "We're just having an all-across the board increase this year". God forbid if they ever sent me a notice saying they were lowering their rates, then I guess my wife would finally collect on my life insurance as I'd probably have a stroke!
People also often ask me why I make myself exempt from workers-comp, and carry a personal disability policy. Ask anyone who has ever had a very serious claim for workers-comp, and they will most likely give you the answers. The process of collecting anything due is too drawn out and complicated as well. Not too mention the rising costs to carry workers-comp as well. Being an employer, the cost for the coverage can burry you. I nor anyone who has ever worked for me has ever had a claim with workers-comp, but a few of my friends have and they have had nothing but problems. One good friend of mine works for Giant Foods in Maryland. In 1998 he was a stocker in the frozen foods and had a frozen food crate fall on him from a shelf and hit him in the neck. He had a bone fusion that year in his neck to repair the damaged disk from the accident. He was off for several months recovering and ended up having permanent nerve damage and was rendered 45% disabled. In 2000, he started experiencing pain and nerve problems more severely again and was given more tests which showed the fusion never took and there was slightly more damage. Again, in 2000, they did another fusion on the same area and sent him on to recover again.
Now, back in November 2002, he started having severe pain again and was again given more tests to only find that the second fusion had'nt taken as well. Now each time he was put through the surgery he missed a few months of work to recover. I think each time it took several(5-7) weeks to even get a paycheck in the beginning. After the first incedent it took over two years to reach a settlement for his injuries. He was again put on disability in November and again it took almost 6 weeks to get a check. Not too mention the fact that they send you to way too many doctors to find out if you're faking or not.
Now he's mulling over another surgery and what not. Not too mention he's got over 23 years in with them and they act as if you just started with no loyalty whatsoever. I think this shows my point with the workers comp deal versus the liability.
I also had to make my first claims against my business insurance for the first time ever. In late November and again in the second week of December we were victims of theft. The first time, we had over $2,000.00 worth of equipment stolen from a jobsite. The second time, someone broke into my work truck and managed to steal over $2500.00 worth of power tools, nail guns, and hand tools. Both complaints were investigated by the police (if that's what you call it) moreso just given a case number. Heck they didn't even come to my truck on the second one as we were having a little snow and ice falling so they just took the report over the phone! Now here I sit still awaiting a check to recover my losses. I have had to call my insurance company way more than I should have, just to get their adjusters to contact me. The first theft I am awaiting closure, the second one I am still waiting for the adjuster to contact me!!
Sorry for ranting, but I feel a whole lot better just being able to!
Insurance = theives without a gun!

I too despise insurance companies. They want your premiums, but don't come asking them to pay, and when they do it's little more than a loan because they'll get it back out of you later.

I'd be interested in what your next premium is Bob, after claiming two thefts. You can pay your bill like a good customer for 10 years, but make a claim and they double your rates to recover their payout.
Both Ben Siegel and Neil have mentioned here at fauna the results of their insurance rates after reporting thefts.
Run into a pole with your car and turn it in on collision, same thing happens. Youre all of a suden classified as a high risk.
We're not talking about getting a half dozen speeding tickets and a DWI, just events that are purely out of the control ov the policy holder.

I understand the reasoning Darin put forth, but I also believe that the insurance companies take extreme advantage of the situation in many cases. To hike the rates of a customer to completely unreasonable levels as a result of a pure accident that is unlikely to happen again is simply abusing their power.
Insurance is something that it's really too dangerous to live without, but also a source of unending frustration that could be made much better.

Health insurance is a monster all it's own. The faults are numerous and many are severe. What with HMOs, preferred providers, acceptable service costs, and continual decreasing of benefits, the entire health insurance industry is little more than a black hole. It's a broken system with no current acceptable means of repair.

So, why does Congress allow this to occur? Because if it didn't the insurance industry would fall flat in a matter of years. If companies could not raise premiums to account for probabilities based on customer classes, if they could not deselect applicants based on actuarial tables, the bottom would literally fall out of the financial markets.

Darin,

When I first read your reply, I thought this sounded very reasonable and certainly seemed to explain the situation very well. And I meant to get back to it and tell you so. However things got busy, but all the while this has been bumping around inside of me head. Well time was good for the ideas to ferment I guess, as the longer it boiled, the more focused my opinion came.

Basically my opinion is that if an entire industry, and this would have to include the financial markets as well, are based on the perpetration of an exemption to a law that the rest of the country is supposed to be held accountable for, then that industry is not needed for this country. This is along the same lines, of the rumors that float around all of the time about revolutionary inventions or discoveries that would change the world, but are suppressed because the change would negatively impact businesss. What would it do to the health industry if a 100 percent cure for cancer were found? What would it to to the power and light companies if a manner of extracting unlimited free energy were discovered or invented? A form of rubber for tires that would never wear out? Light bulbs that would last forever? A car engine that would never wear out? Those sorts of things.

Basically, my opinion is that insurance companies made the bed they are sleeping in, and are now whining to congress that the mattress is too lumpy. I am old enough to remember when doctors used to come to your house, you paid them on the spot, and it didn't cost you an arm and a leg for them just to tell you to take two aspirins, get some bed rest, drink plenty of fluids, and call him in the morning if things aren't looking better.

What is the history of the creation of the first health insurance agency? From what I remember, it was composed of a group of doctors that figured out a way to have a constant stable income every month instead of relying on the whims of nature to make people sick enough to come in to them and spend money for their advice. I suspect, perhaps, that they did not realize the unintended consequences that have evolved from their business venture.

They made the real cost of health transparent to the end user. They made it so that the cost was irrelevant to the end user, since they didn't have to pay for it. What else could possibly happen except that prices would continue to ratchet upwards until people could no longer afford health care without insurance. Or perhaps this was not an unintended consequence, after all.

Basically if the insurance industry cannot survive because it's business model requires discrimination of the sort that the rest of industry is not allowed to do because of legal restrictions, then it has no place in our society. It is not the government's place to protect them, and it is not our place, as citizens to accept some flimsy argument that the world as we know it will fail if they fail. Insurance started out as possibly a good idea that was optional to everyone whom could afford it. They have made it into something that they WANT to be required by every living breathing soul on this planet. I wish I could get a law passed that everyone is REQUIRED to have a corn snake just as the insurance industry has had laws passed REQUIRING that everyone whom drives needs to have insurance. What sort of back room deals do you think took place for that little gem of legislation?

I believe the insurance industry makes a LOT of money. So much money that they can and have bought legislators and paved the way for where they are now with that money. How else can they get themselves exempted from the law? They pay TONS for advertising and donations. How else do they escape the notice of the media for what they are doing?

And yet they cry 'wolf' all of the time. The occasional hurricane in Florida will bankrupt them? That's the kind of protection they sold themselves to us for. If your business cannot be profitable providing the services you claimed you could in your advertising, if you feel you have to fight everyone whom tries to make a claim for those services they bought, part and parcel, when the policy was signed and paid for, if your business cannot survive without your DISCRIMINATING against major portions of the population, then perhaps it is time for your industry to just fade away. I don't think it is necessity speaking here when it is said such things are required for the health of the finances of a country. I believe it is pure naked greed we are seeing. And if by some change their finances may start hurting, I submit that it is likely because they have had to pay off far too many people in government for too long to keep their industry alive. That is likely where their REAL expenses are. IMHO.

Just do the math. Figure one person paying health insurance, either personally or as an employee, for 30 years. Multiply that times a reasonable number of people across the country also doing the same thing. They are playing the percentages, just like the gambling casinos. And everyone knows, the house ALWAYS wins.

Like I said above, I am an insurance broker. However, I am no fan of the insurance companies whatsoever. In fact, the main difference between an insurance agent versus an insurance broker, is that the broker works for the insured, and the agent works for the company.

Even so, there is something about rates and increases that you may or may not know. The individual State insurance commissions regulate all of that in two distinct ways. First, each company has to file its rates with the State every year, and they must have statistically reliable factors for each and every class of insured to justify their rates. The State either approves the rate or it requires the company to readjust its rating guides. Second, each State requires that every company have a certain amount of reserve cash on hand to pay claims that do come in. Usually, this is not a problem for insurance companies, but when there are major disasters, or dramatic increases in coverage costs (hospital stays, doctor bills, construction costs, etc.), the insurance companies can fall below their required reserve levels. When this happens, they are required BY LAW to raise everyone's rates to account for that short fall. The reserve level that each company has is dictated as a percentage of written insurance exposures (how much is actually on the line), so the bigger companies have higher reserve requirements, AND they are more effected by major disasters at the same time. It's a lose/lose situation in many instances.

One last thing, and then I'll stop boring everyone to tears. Insurance companies have insurance too. It's called reinsurance. Reinsurance companies are huge corporate structures that back the insurance companies' losses for premiums that they charge the insurance companies, which in turn charge you. The reinsurance companies are the fail safe of the financial industries, not just in America, but for the entire world. So, when they get hit hard (like in the 9-11 attacks), they cannot take a loss. If they did, the resulting effect of financial concerns all over the world would likely cause many nations to go completely bankrupt and be thrown into chaos (including many of the countries that caused 9-11, by the way). Since they cannot take a loss, they get ALL of their money back from the insurance companies, and the ONLY way to do that is to raise everyone's rates all accross the board.

Why do the truck drivers I write insurance for have to have higher prices (in some cases doubled!) this year? Because the reinsurance company that backs their truck insurance comapny took a loss in 2001, and they are spreading that loss to everyone that pays them premiums. It's just that simple . . .fair or not.

To answer your question, Rich, about the origin of insurance companies, it started in England with local fire departments. Each local fire department was a privately owned entity at first, and they each charged a fee to be covered by the efforts of the firemen. If your house was on fire, right across the street from the firehouse, but you were not a paying customer, no one would help you put it out. Later, the governments of the individual towns and cities created public fire departments, but the idea of insurance had already taken hold.

One of the first insurance entities to be a world-wide player was Lloyd's of London. It is a financial institution that has no real borders or corporate structure. It was, and is, made up of nothing more than a bunch of finaciers who were willing to offer insurance to ship's captians for their cargo. The reason Lloyd's was so successful was because they were able to take all of teh factual considerations into account (what is the experience of the captain? of the crew?, How seaworthy is the ship? Where is the ship going? What are the weather forecasts for that time of year? What is the state of piracy in that region? etc.), and they made their premium determinations accordingly. Lloyd's is still extremely successful, and it is still not a real insurance company, just a huge meeting place for people with money backing people who need protection.

That is really the reason and definition of insurance. It is a transferrence of risk. In almost any aspect of life, there is risk involved. If you accept the risk, it will come upon you alone when an event takes place. If you transfer it to an insurance company, the company will bear the risk for you, but only at a cost. So, buying insurance is doing absolutely nothing but accepting a guaranteed smaller risk for the security of transferring a possible huge one later on down the road.

The problem arises when the guaranteed costs (the premium) become too high to justify the possible risk you are avoiding. For me, it is not worth my money to have an all-encompassing health insurance policy, because my family and I are still relatively young and healthy. Also, it is easier and cheaper for me to handle doctor visits and such on my own, so I have a health insurance policy that ONLY covers huge expenses, but leaves the small stuff for me to pick up. The same effect is found in variable deductibles that can be chosen by an insured. However, for someone that is guaranteed to need a LOT of doctor visits and a LOT of prescription pills (like a senior citizen), having that insurance is beyond value at almost any price.

Want to know if you are living in a flood plane? Call your local insurance agent and ask for a quote on flood insurance. He'll direct you to the governmental aganecy that sells it (because this is such a guaranteed loss that insurance companies won't touch the policies). If the cost of your insurance is the same as if you had to build your house over again every two to three years, you can bet that you will be flooded out every two to three years! Of course, that is just statisically speaking. If you go five years without a flood, the insurance company (in this case, the government) wins, but if you're flooded out three years in a row, you "win."

Yes, the State governments do require auto liability insurance, but it is not for the sake of the insurance companies. It is for the sake of the State. If people are hit by someone without auto liabilty and they have huge medical bills as a result, who do you think had to come up with the balance of that after the victim's savings were exhausted under the old system? The State. And the State, like the insurance companies, is not going to lose money for long. They were either going to raise taxes for a health care trust fund, or require liability insurance. In my opinion, what they did was the lesser of two evils.

As to the idea of conspiracy between the insurance companies and the government, I don't believe that's the case. I'll agree that the American insurance industry is the worst one in the entire world, except for all the others! There simply is no other option to be had. The insurance companies fill a vital need, but they do so at a profit. The government could fill the same need, but due to the intrinsic nature of beaurocracy, it cannot do so at any where near the same cost. Europeans have governmental controlled health care, but do we want to pay taxes at the rates they suffer? I know I don't.

Darin,

Interesting tidbit abut Lloyds of London (they're the ones that will insure anything right) I'm not sure if the laws will allow it now, but theoretically anyone with the bucks could start a company. just an idea. How many shipping deals go bad in the reptile industry. what if you could pay a fee, 2 bucks, 3 bucks 5 bucks a percentafge of the deal, whatever to insure that your package arrived safely. if the animals were doa then the shipper (or the buyer) got their money back and no one would be out. logistics would be difficult to work out but their probably is money to be made by insuring reptile shipments. my luck though the first claim would be a half a dozen het for piebald balls and I'd go broke before I could even cash my first premium check.

Steve Schindler

Steve,

Yeah, it could be bad if THAT were the first claim, especially if there weren't that many premiums in yet! LOL

Such an informal system could be started, but it would have to be started outside of the U.S. (that's how Llyod's get away with it!). Each State has regulations for selling insurance, and you have to be an admitted company in order to offer insurance for sale. Regulations are key in every financial endeavor here in the States, don't you know!

Beside this, I think shipping insurance fraud would soon be a problem. I hate to think this way, but just a casual look at the BOI will show us that almost ANYTHING is possible given enough dishonest people being involved.

Darin

You're right, As we all know, there are more than a few dishonest people in this business.

Steve