INSURANCE ‑- UNFAIR PRACTICES ‑- DISCRIMINATION ‑- LIFE INSURANCE PREMIUM RATES

INSURANCE ‑- UNFAIR PRACTICES ‑- DISCRIMINATION ‑- LIFE INSURANCE PREMIUM RATES

The antidiscrimination provisions of §§ 3 and 6, chapter 141, Laws of 1973, do not now require the same life insurance premium rates to be charged to men and women of the same age in lieu of a continuing use by life insurers in this state of a reduced age factor in computing premium rates for women such as heretofore permitted by RCW 48.12.150 and RCW 48.23.350, and as apparently contemplated by RCW 48.23.180.

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                                                                October 11, 1973

Honorable Karl Herrmann
Insurance Commissioner
Insurance Building
Olympia, Washington 98504

                                                                                                                 Cite as:  AGO 1973 No. 21

Dear Sir:

            By letter previously acknowledged you have requested an opinion of this office on a question which we paraphrase as follows:

            Do the antidiscrimination provisions of §§ 3 and 6, chapter 141, Laws of 1973, now require the same life insurance premium rates to be charged to men and women of the same age in lieu of a continuing use by life insurers in this state of a reduced age factor in computing premium rates for women as heretofore permitted by RCW 48.12.150 and RCW 48.23.350, and as apparently contemplated by RCW 48.23.180?

            We answer this question in the negative for the reasons set forth in our analysis.

                                                                     ANALYSIS

            RCW 48.12.150, denominated the "standard evaluation law," requires the state insurance commissioner to compute, annually, the values of the "reserve liabilities" of every life insurer doing business within the state.  In the computation  [[Orig. Op. Page 2]] of such liabilities, the commissioner is to be guided by a "minimum valuation standard" which is defined by the statute, in material part, as follows:

            ". . .

            "(3) Minimum valuation standard;

            ". . .

            "(b) (i) Except as otherwise provided in subsection (3) (b) (ii) of this section the minimum standard for the valuation of all such policies and contracts issued on or after the operative date of RCW 48.23.350 shall be the Commissioners Reserve Valuation Method defined in subsection (4) of this section, three and one‑half percent interest or in the case of policies and contracts, other than annuity and pure endowment contracts, issued on or after the effective date of this 1973 amendatory act, four percent interest, and the following tables:

            "(A) For all ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such policies,‑-the Commissioners 1941 Standard Ordinary Mortality Table for such policies issued prior to the operative date of RCW 48.23.350(5a), and the Commissioners 1958 Standard Ordinary Mortality Table for such policies issued on or after such operative date:  Provided,That for any category of such policies issued on female risks on or after July 1, 1957, modified net premiums and present values, referred to in subsection (4) of this section, may be calculated according to an age not more than three years younger than the actual age of the insured."  (Emphasis supplied.)

            Of similar import is RCW 48.23.350, known as the "standard nonforfeiture law."  This statute prohibits the issuance or delivery in this state of a life insurance policy unless it includes within its terms the substance of certain nonforfeiture provisions, among which is a statement of the mortality table used to calculate its cash surrender value and paid-up nonforfeiture benefits.  The part of this statute  [[Orig. Op. Page 3]] which is pertinent to your inquiry is subsection (5) which reads in material part as follows:

            "Except as otherwise provided in subsections (5a) and (5b) of this section, all adjusted premiums and present values referred to in this section shall for all policies of ordinary insurance be calculated on the basis of the Commissioners 1941 Standard Ordinary Mortality Table:  Provided,That for any category of ordinary insurance issued on female risks on or after July 1, 1957, adjusted premiums and present values may be calculated according to an age not more than three years younger than the actual age of the insured. . ."  (Emphasis supplied.)

            The third section of the insurance code cited in your request, RCW 48.23.180, deals with the contents of certain annuity or endowment contracts and provides that:

            "In such contracts there shall be a provision that if the age or sex of the person or persons upon whose life or lives the contract is made, or if any of them has been misstated, the amount payable or benefit accruing under the contract shall be such as the stipulated payment or payments to the insurer would have purchased according to the correct age or sex; and that if the insurer shall make or has made any overpayment or overpayments on account of any such misstatement, the amount thereof, with interest at the rate to be specified in the contract but not exceeding six percent per annum, may be charged against the current or next succeeding payment or payments to be made by the insurer under the contract."

            None of these three statutes, it will be observed, purports torequire the use of an adjusted age in computing life insurance premium rates for women.  The first two, RCW 48.12.150 and RCW 48.23.350, merely permit such usage, within specified limits, while RCW 48.23.180 apparently does no more than to contemplate the possibility that the age and/or sex of the insured may be deemed relevant in the issuance of a contract  [[Orig. Op. Page 4]] and, accordingly, to provide a remedy for the misstatement of these facts.  Your question, in essence, is whether full effect can continue to be given to these statutes in view of the recently enacted provisions of §§ 3 and 6, chapter 141, Laws of 1973, which became effective on June 7, 1973, and brought discrimination with respect to insurance transaction within the coverage of the earlier enacted state law against discrimination ‑ chapter 49.60 RCW.

            The ultimate legal issue raised by this question is whether either of these two sections of chapter 141 must now be said to require that the same life insurance premium rates be charged to men and women of the same age in connection with policies issued or renewed in the future ‑ rather than such differing rates as have heretofore been permitted by RCW 48.12.150, and RCW 48.23.350 and apparently contemplated by RCW 48.23.180.  In responding we will first address ourselves to the question of whether the future use of such differing rates will constitute an unfair practice under § 6, a new section of the law against discrimination which provides as follows:

            "It is an unfair practice for any person whether acting for himself or another in connection with an insurance transaction to fail or refuse to issue or renew insurance to any person because of sex, marital status, race, creed, color or national origin.  For the purposes of this section, 'insurance transaction' is defined in RCW 48.01.060.

            "The fact that rates charged may have been filed and approved pursuant to Title 48 RCW does not constitute a defense to an action under this section and the fact that such unfair practice may also be a violation of chapter 48.30 RCW does not constitute a defense to an action brought under this section."

            RCW 48.01.060, as referred to therein, defines the term "insurance transaction" as follows:

            "'Insurance transaction' includes any:

            "(1) Solicitation.

            "(2) Negotiations preliminary to execution.

             [[Orig. Op. Page 5]]

            "(3) Execution of an insurance contract.

            "(4) Transaction of matters subsequent to execution of the contract and arising out of it.

            "(5) Insuring."

            Although we have not overlooked the language in the second paragraph of § 6,supra, making procedural reference to rates which have been filed and approved pursuant to Title 48 RCW (the insurance code), we think the over-all thrust of this section is merely that of declaring the failure or refusal to issue or renew an insurance policy because of sex to be an unfair practice.  Possible discrimination resulting from the comparative contractual terms contained within those insurance policies which are, in fact, issued to men and women, respectively, therefore, does not appear to be within its purview.

            Somewhat broader, however, is the scope of § 3, chapter 141, supra.  By this section the legislature has amended the preexisting provisions of RCW 49.60.030 so as to provide, in material part, that:

            "(1)  The right to be free from discrimination because of race, creed, color, ((or)) national origin, or sex is recognized as and declared to be a civil right.  This right shall include, but not be limited to:

            ". . .

            "(d)  The right to engage in credit or insurance transactions without discrimination;

            ". . ."

            In short paraphrase, this statute now grants an unqualified civil right to be free from discrimination because of sex ‑ not limited to what may or may not be an "unfair practice" as defined in some other section of the law against discrimination ‑ in connection with credit or insurance transactions.  Its manifest purpose, like that of § 6, supra, is that of affording equal access to insurance on the part of both sexes;  [[Orig. Op. Page 6]] but unlike that section, it is not limited to the refusal of an insurer to issue or renew an insurance policy because of the applicant's sex.  Doesthis statute, then, prohibit the continuing use of a reduced age factor in computing future life insurance premium rates for women in this state?

            The problem presented by this amendatory provision has few parallels in the heretofore decided civil rights cases because ordinarily civil rights, like constitutional rights, belong to individual persons and not to classes of persons.  Generalities about the class of persons to which the complainant belongs are usually immaterial to his or her rights under a civil rights statute, even if these generalities are true.  As the court said inDiaz v. Pan American World Airways 442 F.2d 285 (5th Cir. 1971), cert. den. 404 U.S. 950, 30 L.Ed.2d 267, 92 S.Ct. 275 (1971):

            ". . . Pan Am cannot exclude all males simply because most males may not perform adequately [as stewards-stewardesses]."

            Insurance, however, is something which by its very nature applies to classes of persons.  Its function is to reduceindividual risk by lumping persons together inclasses, all members of the class then sharing the cost of the total risk of the class.  A realistic application of a civil rights statute to insurance must, therefore, deal with the class characteristics of the insurance industry, and since most of the decided cases dealing with civil rights take an "individualistic" approach, they are thus of little assistance in resolving the present question.

            It is well established by these cases, however, that any civil rights statute such as RCW 49.60.030,supra, is to be given a practical construction to promote the ends it is designed to achieve.  Stated positively, those ends are the achievement of equality of opportunity under conditions that are racially and sexually neutral.  See,McDonnell Douglas Corp. v. Green,      U.S.    , 36 L.Ed.2d 668, 93 S.Ct.     (1973).  Griggs v. Duke Power Co., 401 U.S. 424, 38 L.Ed.2d 158, 91 S.Ct. 849 (1971).  But as indicated by the Supreme Court in the Griggs case, equality of treatment may be denied as much by equal application of a single standard to persons unequally situated as by application of unequal standards to persons equally situated.

            In terms of the immediate question before us much the same point was recently made by the Honorable Herbert S. Denenberg,  [[Orig. Op. Page 7]] Insurance Commissioner of Pennsylvania, in a statement prepared for a hearing on economic problems of women conducted by the Joint Economic Committee of the United States Congress on Women's Access to Credit and Insurance on July 12, 1973.  In describing the over-all nature of the insurance industry from the standpoint of its establishment of risk classifications, Commissioner Denenberg said:

            "There are strong pressures to subdivide the insurance market with more and more classifications.  But the essence of insurance is loss spreading ‑ using the premiums of everyone to pay for those who suffer losses.  Insurance can best achieve this loss spreading function if there are broad classifications and broad coverage.  If classifications and coverage become too narrow, premiums may become prohibitive for many.  Then only those most clearly exposed to the loss would buy the coverage.  This process, called adverse selection, in turn drives premiums still higher as only the most loss prone are insured.

            "The insurance industry has traditionally established higher rates for one sex rather than the other whenever sex classifications produce significant loss or cost differentials (See the examples in Exhibit I).  Women pay more for annuities, disability and medical and hospital expense insurance.  Men pay more for auto insurance at younger ages and more for life insurance.  Some kinds of insurance do not involve classifications based on sex ‑ e.g., homeowners and title insurance.

            "In a competitive insurance market, however, there are difficulties in establishing insurance classifications that reflect public policy in addition to actuarial considerations.  For example, if equal rates are to be charged policyholders with different loss potentials, at an averaged rate, insurers will have a strong incentive to sell only those individuals with the lower loss potential.   [[Orig. Op. Page 8]] Many would-be policyholders will find it difficult to obtain coverage."  (Emphasis supplied.)

            Bearing both these remarks and the above‑stated legal principle in minds, let us now direct our attention to the apparent basis for the use of a reduced age factor in computing life insurance premium rates for women.  Simply stated, reliable actuarial tables show that women, as a class, live longer than men, as a class.1/   Therefore, their payment of life insurance premiums can be anticipated for a longer period of time and the risk of their dying during any given policy period will be less, overall, than it is for men of the same physical age.

            If, as we have previously stated, the underlying purpose of RCW 49.60.030,supra, as amended, is that of affording equal access to insurance on the part of both sexes, the obvious question which ultimately must be faced in determining its effect upon existing practices is whether this purpose will, in fact, be served or frustrated by treating men and women identically in terms of longevity instead of continuing to recognize a known difference in their respective life expectancies.  In order to answer this question let us consider two possible consequences of an affirmative answer to it.

            If, for actuarial purposes, men and women were now deemed by this statute to be required to be grouped together and made to pay the same premium rates for life insurance issued at the same age, insurers might well attempt to maximize premium revenues by actively seeking the business of women ‑ since the insurer in question would stand, on the average, to receive several additional years of premium revenue for each female insured.  Correspondingly, those insurers might also shy away from selling life insurance to men since the total premium paid would, on the average, be lessened by an equivalent number of annual payments in such cases.

            Alternatively, even if this consequence suggested by Commissioner Denenberg's remarks,supra, were not to occur,  [[Orig. Op. Page 9]] another result most certainly would.  If RCW 49.60.030, as amended, were to be read as requiring the same life insurance premium rates to be charged to men and women of the same age, those women seeking to purchase such insurance at a lower premium more nearly consistent with their actual life expectancy would be thwarted from doing so.