The focus on actuarial tables and rating systems by state regulators is insufficient to ensure that protected groups are not discriminated against by the insurance industry. The most powerful tool used to exclude unwanted groups from the insurance pool lies in the subjective underwriting guidelines companies utilize, yet the rhetoric surrounding the insurance industry shifts attention away from this area.
In this article I focus on the narratives that members of the insurance industry construct to depict certain groups as uninsurable. If we study the stories that inform the creation of actuarial tables and underwriting guidelines, we arrive at a far different perspective on antidiscriminatory regulation than is currently practiced.
As recent court cases and academic studies have revealed, discrimination against certain groups by the insurance industry still remains an unfortunate practice (United States v. American Family Mutual Insurance Company ; "Insurer To Revise Its Urban Business," New York Times, 1 Feb. 1997; Treaster 1998). By definition, discrimination occurs when two otherwise identical individuals are treated differently by virtue of a particular characteristic. Paired testing using black and white applicants has revealed that illegal discrimination (i.e., using distinctions based on criteria banned by law) can take many forms, from agents refusing to return customer phone calls, to offering higher prices and weaker policies, to denying outright coverage for members of unwanted groups (Lynch 1997; Smith & Cloud 1997; but see Wissoker, Zimmermann & Galster 1998). Discrimination can also take the more subtle form of the insurance company being slower to handle the claims of ethnic minority claimants than of whites (Baker & McElrath 1997; Chan 1999). Insurance companies desire certain groups more than others as customers, and as a result, those who do not fit the underwriter's vision of the ideal member of society, such as certain racial and ethnic minorities, the poor, gays and lesbians, and people with alternative lifestyles, can have a difficult time obtaining desired coverage.
The biggest concern about discriminatory practices for those trying to eradicate them is how difficult they are to detect. Depending on the state, insurance commissions can be grossly under-funded, and in any event they tend to focus almost exclusively on the financial aspects of the industry, such as whether companies have sufficient loss reserves and whether their rates are adequate (Abraham 1995: 99). For most discriminatory practices to be exposed then, the affected group must either register a complaint with the state's insurance commission or file a suit in court. These individuals must somehow first become aware that they are being discriminated against, and this can be difficult to do if they do not understand the underwriting process or if they are unaware that the insurance company categorizes them in a certain manner (Austin 1983; Simon 1988). In fact, they may not even realize that they have been discriminated against at all, since their agents will most likely manage to cover up the effects by placing them in other, less advantageous, programs.
Underwriting is the process of determining which applications the company should accept, and for those who are accepted, in which program they belong. The process of risk selection (as underwriting is also known) has two faces, one that is presented to regulators and applicants, and a second that is used by underwriters. I argue that the Janus-like aspect of underwriting is what has allowed a great deal of discrimination to continue for as long as it has. The outward face is one of numbers, statistics, and objectivity. The inward face is that of narratives, character, and subjective judgement. The rhetoric of insurance exclusion-numbers, objectivity, and statistics-form what I call "the myth of the actuary," a powerful rhetorical situation in which decisions appear to be based on objectively determined criteria when they are also largely based on subjective ones. …