Prohibited discrimination

An insurer is prohibited by anti-discrimination statutes from discriminating against potential insureds when issuing policies. The statutes require policies to contain equal terms for insureds of the same class of risk. Certain practices, including providing rebates or preferential treatment to particular insureds as to either rates or coverage, are prohibited. The insurer is also prohibited from fictitiously grouping insureds into classes without using legitimate rate-making considerations so as to charge different rates. In addition, the statutes prohibit insurance agents from offering insurance to an insured with a promise of consideration not provided for in the policy in order to induce a certain class of persons to obtain a policy. Any clause that attempts to discriminate against an insured will be held void.

Permitted discrimination

An insurer may, however, engage in certain practices that differentiate among insureds. The insurer may charge different rates when its exposure is different. Thus, it may charge a higher premium when the risk that it is assuming is greater. It may also offer a reduced rate to a certain group of insureds if the reason for the reduced rate causes a reduced expense factor for the insurer. For example, a reduced rate may be offered to a group of insureds employed in a certain occupation by a particular employer. The fact that some differences may exist in the rights of insureds under their policies in a mutual insurance company does not necessarily show illegal discrimination. Further, an insurer may offer lower rates to insureds who purchase insurance through a mass marketing plan.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.