Life insurance used to be a pretty predictable business. The companies figured out how much to charge for policies based on industrywide life expectancy tables, expected earnings from investments like the stock market and real estate, and the cost of selling those policies. For many decades, the system worked just fine. Changes in the rate-setting equation were mostly good ones as people lived longer, and stock and real estate values went up.
This also removed much of the uncertainty for policyholders, especially those who bought term policies, where the premiums go up every one to five years. People holding these policies could be fairly sure that premium increases would not exceed inflation or increases in their own pay, which would keep their costs at about the same percentage of overall income.
Today, however, the insurance industry is being pummeled by various consumer organizations, rival industries like banking and other financial services, and equal-rights groups which say they're tired of hard-to-get policies, expensive rates, and unfair competition.
But the industry is fighting back with an almost universally echoed claim: Consumers are the ones who will be hurt by their own proposed changes.
Consumers don't agree. More and more women say gender-pricing of policies is discriminatory; more activists condemn the idea that people with the acquired immune deficiency syndrome virus are considered uninsurable; and Congress is questioning whether the industry should continue to be exempted from federal regulation and antitrust law under the McCarran-Ferguson Act. The insurance companies want to maintain the current system of regulation by individual states.
These three issues - unisex rates, AIDS testing, and the possibility of greater federal regulation - threaten to shake the once-predictable foundation of the life insurance business, with uncertain effects on the companies and their customers. Unisex rates
``There are so many times I've faced disadvantages in my career and in my life because I'm a woman, when I do get a benefit, why should I rush to give that up?'' questions Betsy Munzer, a former vice-president at the New England, formerly New England Mutual Life Insurance Company, who conducted research for the industry's use in legislative hearings on the unisex issue.
Ms. Munzer echoes the dilemma faced by many women who don't want to lose the benefits insurance companies say gender-pricing gives them, but feel unisex rates - where men and women pay the same, despite differences in life expectancy - may be more important ``just to make the system equal.''
The insurance industry argues that both men and women, but especially women, have an advantage with the current pricing system. Single women under 25 usually pay much less for auto insurance than single men under 25, because they have fewer accidents than young men. And, they say, because women have a longer life expectancy than men, they are charged less for life insurance, because as a group they make fewer claims in any given year.
But a study done by the Nongender Insurance Project of Montana found that in that state, ``in every category of insurance where gender-based rates were used, an inconsistency that disadvantaged women was found.'' Women carrying all five of the standard policies surveyed could pay a total of $20,176 more than men in terms of higher premiums and lower paybacks, the study showed.
After Montana mandated unisex insurance pricing as of Oct. 1, 1985, women's benefits increased drastically, the study found. And, says Marcia Youngman, the project's director, ``the benefits would've been even greater had the industry not passed on increases that were almost wholly unrelated to the law.'' The state is now looking into the legality of those increases.
Insurers insist, however, that gender is critical to cost-based pricing.
``The insurance system must group people according to risk,'' says Robert Waldron, director of the New York office of the American Council of Life Insurance and the Health Insurance Association of America. The differences between men and women, he says, account for as much risk difference as do age, health status, occupation, and smoking.
Industry statistics have shown for years that women outlive men by an average of six years. ``Go into any nursing home and see how many more women there actually are, and you can't ignore the difference,'' Munzer at Colonial Group says.
But women's groups contend that 80 percent of their sex don't outlive men. Ms. Youngman, using information provided by the industry, says insurance companies are basing their rates on only the 14 percent of the female population that does live longer.
While women pay less for life insurance, they also receive lower premiums. ``Insurance companies have created a stereotype to justify the difference in men's and women's rates,'' says Helene Weitzenkorn, vice-president of the Massachusetts chapter of the National Organization for Women.
The industry is loudly protesting a Massachusetts regulation that will bar insurance companies doing business in the state from making distinctions in premiums or benefits based on gender, as of Sept. 1, 1988.
``It will absolutely disorganize the marketplace,'' says Mr. Waldron at the American Council of Life Insurance. ``It'll raise the price for everyone, and women will wind up subsidizing the higher mortality rate associated with men.'' Because 90 to 95 percent of women who have health and disability insurance get it through their employers on an equal-benefit, equal-cost basis, ``90 to 95 percent aren't going to see any difference in benefits,'' says Barbara Lautzenheiser, a management consultant at Lautzenheiser & Associates in Hartford, Conn., who specializes in insurance and government. AIDS testing
In the midst of heavy industry protest, the state of Massachusetts has also proposed a regulation that would forbid insurance companies from screening for the AIDS, or HIV virus, except for some policies that are also available without testing.
In all other states, except the District of Columbia and California, insurance companies are allowed to test for AIDS or for any other life-threatening disease.
The proposal is based on a ``strong belief in people's need, if not right, for health care,'' says the Massachusetts secretary of consumer affairs, Paula Gold.
The state made the following proposals:
No HIV testing for health insurance.
No HIV testing for group insurance, since losses can be spread out, the state said.
Limited, controlled testing for life and noncancelable disability. Because insurers say life coverage is not essential, and companies can't adjust premiums once they are set, long-term medical testing is commonplace and well established. But under this proposal, HIV testing is to be permitted only under strict conditions that protect the applicant's privacy, keep test results confidential, and allow for a retest if the first is positive.
Insurers must offer a non-test option for certain amounts of coverage. Insurers may only test for policies below $100,000 if they also make equivalent policies available that do not require the test.
Insurers say these regulations could prove devastating to all policyholders. Because no testing can be done for health policies, ``it may drive individual health insurance companies out of the market,'' Waldron says.
AIDS claims reported by 37 major life insurance companies doing business in Massachusetts exceeded $44 million nationwide in 1984, '85, and '86. While AIDS claims in 1986 were less than 0.2 percent of total industry death claims, projections by the Centers for Disease Control suggest that current AIDS claims are only the tip of the iceberg.
The Institute of Medicine at the National Academy of Sciences estimates that by 1991, there will be 270,000 AIDS cases. And in that decade AIDS claims are expected to reach hundreds of millions of dollars, says the Depart ment of Consumer Affairs in Massachusetts.
Insurers contend that costs will rise even more as healthy policyholders pull out, on grounds they can no longer afford higher rates.
Since the Massachusetts guidelines don't allow testing for health or disability insurance, industry leaders say, a person could wait until he is ill before buying.
But AIDS activists and civil rights groups argue vehemently that widespread testing for the virus could expose applicants to discrimination in other areas, including employment and housing, and deprive them of coverage when they need it most. McCarran-Ferguson Act
Insurance is still the only major industry immune to federal regulation and antitrust law. The $325 billion-a-year business wants to keep it that way.
But a broad coalition of bankers and consumer groups is trying to repeal the 42-year-old McCarran-Ferguson Act, which grants this immunity. They charge, among other things, that it has allowed companies to get away with charging exorbitant prices for liability insurance.
Insurers persuaded Congress to pass McCarran-Ferguson to counteract a 1944 Supreme Court ruling which said insurance contracts were subject to federal antitrust laws because they were engaged in interstate commerce. Congress then granted the insurance industry a permanent exemption from Federal regulation and antitrust laws as long as companies were regulated by the states.
A recent bill proposed by Democratic Sens. Joseph Biden Jr. of Delaware, Edward Kennedy of Massachusetts, Paul Simon of Illinois, and Howard Metzenbaum of Ohio would prohibit the insurance industry from basing their rates on industrywide statistics. Supporters of the bill say it could result in greater availability of coverage at more affordable rates.
But industry leaders say repeal of McCarran-Ferguson will not alleviate consumer problems but could make them worse.
What it would do, says Waldron, is result in dual regulation. ``States wouldn't give up the revenues they get from taxing the industry, nor would the federal government give up the fight.''
Dual regulation would pass extra costs on to consumers, industry spokesmen say. Repeal of McCarran-Ferguson would especially harm small companies that rely heavily on industrywide underwriting data to establish their rate structures. Insurance companies would no longer be able to set joint rates, or share certain types of information.
F. David Rolwing, president of the Montgomery Mutual Insurance Company in Maryland, a relatively small company, says ``there are very few companies that have a credible data base in all lines of insurance that would allow them to establish rates the way large companies do. Prices would go up, capacity would decrease, and the consumer would be the loser.''
At a hearing before the House Subcommittee on Monopolies and Commercial Law in April, the American Banking Association testified that the banking industry is regulated when conducting the same kind of business practices in which insurance companies have immunity. The bankers argued that since the insurance industry directly competes in the financial activities market, banks should be allowed to compete in insurance.