Consumer advocates have generally suffered losses in the war against the use of credit scores and other rating methods that they deem unfair. Fairness in the risk-rating business is generally defined to be having a legitimate link between risk and the rating category. Smokers, for example, have higher risk of lung cancer and so they get a higher life insurance premium. No one really disputes this rating classification because everyone knows smoking is bad for one's health. However, the consumer advocates believe that insurers should not charge poor people more for their insurance just because they are poor. I concur. However, I do not think that is the case at all and most states have agreed with this position.
Now, the consumer dis-advocate argument is becoming slightly different. Mr. Hunter and his associates are claiming that an ethical consumer should not deal with a company which gives them a price discount if they are going to raise the poor person's insurance as a result.
Hunter cautions that some companies seem to harbor biases against minorities and low-income people. He objects, for instance, to auto insurance giant GEICO's use of education and occupation as factors to determine a driver's risk. Through a formula, he says, domestic workers and high school dropouts pay higher premiums to GEICO than do their better-educated counterparts who have identical driving records. His tip for ethical consumers: Beware when an insurer starts asking about your schooling and your job. Even though you might get a good rate, your less-educated neighbor may be paying an exorbitant fee due to an unfair process.
"A lot of people don't think about how this classification system works," Hunter says. "I think most people say, 'Oh, the rate is $50 less, I'll take it.' They don't [realize], 'The reason I'm paying $50 less is because some poor people over there have to pay $100 more.' (Christian Science Monitor)
So now the consumer with a good record (or low- risk) becomes complicit with the evil insurer for the risk classification system. So, non-smokers should not take the lower life insurance premium as the lower educated poor person will have to pay more as a result. The low-risk consumer is now as evil as the invidious insurer.
The wacky thing here is that there is no causation and every actuary should know this. Risk rating classes are designed not to subsidize or tax others. The price for the risk class of non-smokers (or good credit risk) has nothing to do with the price for the other risks the insurer provides protection. If there were subsidization, then we'd have too many high risks taking a low risk policy. This causes a loss to the company. If we tax a policy we end up selling too few of that type of policy and the company would not make as much money as possible.