Illinois Life Producer State-designated Practice Exam

When an insurance company quotes a different rate from individuals in the same risk class, this may be seen as what type of discrimination?

1. Comprehensive discrimination

2. Unfair discrimination

3. Prejudicial discrimination

4. Class-based discrimination

The correct answer is: Unfair discrimination

When an insurance company quotes different rates to individuals within the same risk class, it may be considered unfair discrimination. This type of discrimination occurs when an insurer treats individuals with similar risk profiles differently, leading to unequal treatment that cannot be justified based on valid underwriting principles. In insurance practices, risk classification is intended to ensure that similar risks are charged similar premiums. If the differentiation in rates does not reflect differences in risk or is based on arbitrary factors such as race, gender, or other non-risk-related characteristics, it constitutes unfair discrimination. Such practices can undermine the integrity of the insurance system and lead to legal and regulatory challenges. The other options do not accurately capture the essence of this specific situation. Comprehensive discrimination and prejudicial discrimination are not standard terms used in the insurance context, while class-based discrimination may imply a larger segment categorization rather than focusing on inequalities within the same risk class. Recognizing unfair discrimination is crucial for maintaining fairness and equity within the insurance industry, ensuring customers are treated justly based on their actual risk factors.