Ethical considerations of differential life insurance premiums for indigenous Australians

Ethical Perspective

Discuss from an ethical perspective whether Australian insurers should charge different life insurance premiums for indigenous and non-indigenous people.

Introduce the problem and define its ethical implications

In Australia, there are disparities between the expected life span of indigenous and non-indigenous demographics. According to the Australian Health Ministers Council, they are determined that mortality rates are on average 1.9 times higher for indigenous people in contrast with the rest of society. This is problematic, as the federal and state governments are spending $44, 128 on this group versus $19, 589 for all other demographics every single year. These additional amounts of funding are designed to provide indigenous people with the resources they need to improve their overall quality of life. (2012 Indigenous Report 2012) (Mortality 2013)

However, for many insurance companies this means that they are rating those who are from the indigenous population higher in contrast with the rest of society. This is problematic, as it is highlighting potential challenges these firms can face from this kind of policy. Most notably: charges of genetic discrimination. This is despite the fact that the person could be living a healthy lifestyle and making good choices. To fully understand what is happening, there will be a focus on the pros / cons of these procedures and possible solutions for addressing these issues. Together, these elements will highlight the overall scope of the problem from an ethical perspective and how these challenges can be addressed over the long-term. (Genetic Discrimination 2012)

Pros and Cons

The primary reason why many insurance carriers will charge higher premiums to indigenous people is they are using mortality tables to provide them with reliable information. These figures are telling them, that there will be higher rates of death at an early age for this segment of the population. This means that they will have larger payouts to the beneficiaries sooner. To account for these costs, they will charge someone from this demographic with a higher premium based upon genetics. (Mortality 2013)

Evidence of this can be seen with the fact that the life expectancy rate is much lower for indigenous vs. non-indigenous population groups. In the below table, they determined that these figures can be from 1.6 to 2.5 times higher.

Standard Death Rates for Indigenous vs. Non-Indigenous Population Groups

Location

Indigenous Rate

Non-Indigenous Rate

Ratio

New South Wales

1.6

Queensland

1,089

1.8

Western Australia

1,431

2.5

South Australia

1,060

1.7

Northwest Territory

1,541

2.4

Average

1,151

1.9

(Mortality 2013)

This is illustrating how the lower life expectancy rates will influence the premiums someone is paying for life insurance. It is based upon determining if they are in the indigenous vs. non-indigenous populations. As carriers, believe that this will give them a general background in analyzing the risk profile of someone. (Mortality 2013)

From a business perspective, this helps to keep insurance companies solvent and it prevents them from raising premiums on everyone else. When this happens, they can offer coverage to larger segments of the population at reasonable rates. This means that they can provide the maximum amount of protection and reduce their exposure from engaging in these practices. (Mortality 2013)

The drawbacks of utilizing these approaches are that this is considered to be genetic discrimination. This is when insurance companies will charge more for premiums based upon someone coming from a particular ethnic group. In the past, many of these practices were utilized to give some kind of advantage to people who were from non-indigenous backgrounds. This focus is taking a similar approach, by showing how someone is a higher risk because of their ethnicity. These views are not considering the lifestyle choices they are engaging in such as: physical activities, their diet, if the person is a smoker or drinks alcohol. (Bombak 2012)

Instead, they will use this category to automatically rate indigenous people higher largely based upon this variable. From an ethical perspective, one could argue that insurance companies are discriminating against this segment of the population without taking into consideration other factors. This makes it difficult for this demographic to locate and obtain affordable life insurance because of these views. When this happens, it means that there is a realistic possibility they will have no protection against uncertainties for their families. Over the course of time, this will increase the overall amounts of financial hardships indigenous people will face because of these challenges. (Bombak 2012)

Recommendations for Addressing these Issues

The best way to deal with these issues is to force insurance companies not to rely so much on mortality rates. Instead, they must show that there are other variables which are considered when determining the premiums they will charge for life insurance. For instance, in the process of underwriting an applicant, who is from an indigenous background; they need to demonstrate alterative factors that influenced their decision (i.e. lifestyle choices and age). This means that the person's ethnic group should play a small part in the process of assessing the risks. (Bombak 2012)