Two individuals in the same risk and age class are charged different rates for their policies due to an insignificant factor. What is this called?

• A. Adverse underwriting
• B. Discrimination
• C. Rating difference
• D. Actuarial abnormality

Answer: (B)

Pricing in insurance should reflect factors that genuinely indicate higher or lower risk. When two people in the same risk and age class are charged different rates because of an insignificant factor, that is discrimination. It means treating similar insureds differently without a justified, risk-based reason, which undermines fairness and is typically prohibited by rating rules and underwriting practices.

Adverse underwriting would involve applying harsher standards to higher-risk cases, not simply charging different premiums within the same class for an unrelated factor. A rating difference implies price variation based on actual risk differences; if the factor is insignificant, it wouldn’t justify a price change. Actuarial abnormality isn’t a standard term used to describe this situation.