Conclusions to Part II

The most prominent characteristics of life insurance underwriting are its flexibility and heterogeneity. Flexibility is needed because average mortality rates never apply to all applicants, even in classes characterized by great homogeneity and ample data. Flexibility also permits underwriters to vary prices to meet competition, countering the apparent rigidity of insurance rate books. Heterogeneity is present primarily because accurate mortality statistics have not been available for most hazards. Thus, in many instances, rates and procedures have evolved through judgments made by underwriters, medical personnel, and actuaries with many years of life insurance experience. These features of underwriting are not necessarily adverse, but the same factors that permit the underwriter to achieve greater equity also provide latitude for the exercise of prejudice and personal whim. We believe that the benefits of a free and competitive life insurance industry outweigh the possible inequities that may arise from the exercise of underwriting judgment. Nevertheless, regulators and public interest groups should be alert to possible problems and injustices.