State’s Law on Sex-Based Insurance Rates Voided

A Superior Court commissioner on Monday struck down a law requiring California life insurance companies to offer reduced premiums to women, a policy that recognizes women’s longer life spans but that critics say unfairly discriminates against both men and women.

The ruling, which comes in response to a challenge by the American Civil Liberties Union, bars the state Department of Insurance from enforcing requirements that women be given an age advantage of at least three to six years over men when purchasing private life insurance and annuities.

Although many states permit insurance companies to use gender-based rate calculations, California was the only state to require such price differentials, said ACLU attorney Carol A. Sobel, who called Commissioner Donald W. Pike’s ruling “a good, strong message” to the state’s insurers.

Because the ruling is directed at the state, rather than insurers, companies are free to continue calculating their rates based on gender considerations. But an industry spokesman said some companies undoubtedly will move to adopt unisex rates if there proves to be a demand for such policies.

Obeying the Law

“The insurers will follow the law,” said Brad Wenger of the Assn. of California Life Insurance Cos., “but I’m not sure that the majority of the female population wants to pay a higher rate for life insurance.”

Sobel said the ruling paves the way for private lawsuits by clients unhappy with their insurance companies’ pricing policies.

“The practical effect is that it gives people that are discriminated against in private annuity and insurance policies some authority to challenge the practices of the insurance company,” Sobel said. “I think it tells the insurance companies that the state of California is not going to be an ally in their discriminatory practice. Symbolically, it’s very important.”

The 1978 statute requiring private insurers to use sex-based mortality tables or specific age differentials in calculating premiums and annuities was adopted, in large part, in response to women’s complaints that unisex pricing did not take into account the fact that women live an average of seven to eight years longer than men.

ACLU’s Assertion

The ACLU claims that such pricing policies discriminate against men, who must pay a higher premium for life insurance, and against women, who typically receive lower monthly annuity checks because they are expected to collect them longer.

While admitting that women on the average outlive men, the ACLU argued that such generalizations are based on statistical calculations that have no bearing on an individual’s life expectancy.

“No matter how healthy or ill an individual California woman may be, as a result of (state law) she will necessarily receive a lower monthly annuity payment for her insurance investment dollar than a California man of the same age, regardless of his health or actual life expectancy, simply because she is a woman and presumed solely on the basis of her sex to have a longer life ahead of her,” the ACLU said in its legal brief.

The counsel for the state Insurance Department, Paul M. Geary, said the ACLU’s arguments “show a complete misunderstanding” of the concept of life insurance, which requires certain risks to be shared among a group of people.

“Insurance policies could not be rated nor would they be available at all if such classifications (as age, health and sex) were not permitted,” Geary said in his court papers.

“My theory is that the law as it is requires fair treatment for both sexes. Each one will pay a premium based on their own likelihood of mortality,” said Geary, who added that he was “surprised” at the court’s ruling and not certain whether the department will appeal it.

Wenger, who was not familiar with the details of the ACLU case, said that while some companies may move to adopt unisex rates, the industry as a whole has traditionally supported gender-based rating tables.

“We think that sex, just as age is, is a very important risk classification tool, and we don’t think the Legislature and the courts should deny us the use of that,” Wenger said.

A 1983 U.S. Supreme Court decision that struck down the use of sex-based mortality tables in company-funded insurance and pension plans as unlawful job discrimination effectively required gender-neutral pricing structures for all employment-related life insurance policies in California.