| Why? In the (theoretical, unrealistic) limit of perfect competition, supposing that the profit margin is the same in both cases, wouldn’t the average purchaser of car insurance would be better off if these things were taken into account than if they weren’t? Ok, maybe you don’t think averages are the thing to care about. Uh, Ok so if you draw the demand curves (not straight lines) for car insurance for both types of people (those born with and without street racing symbols on their irises)
And we consider the cases where the insurance companies can set a price that depends on the type,
uhh,
Well, Hm, ok yeah I guess those with racing-eyes get a worse deal in the case that they can be discriminated against. (Here I am using “discriminated against” in what is meant to be a way that doesn’t make a value judgment) But, the point of insurance is not to produce equal outcomes between people. The point of insurance is to reduce the variance in outcomes for each person with as small as possible a worsening of the average outcome for that person.
If what you are doing is trying to make outcomes equal between groups, what you are doing is no longer just insurance, but a subsidy. Is it really more efficient to have the prices be required to be the same regardless of racing-eyes, than it would be to just directly tax those with non-racing-eyes to subsidize those with non-racing-eyes? Maybe. I haven’t done the math. |
Profit margins would actually be bigger in the case of more profiling. Absent profiling, insurers open themselves up to much more negative selection (e.g. old people being more likely to purchase cheap health insurance that's subsidised by the young), which has the effect of increasing premiums for the customer, decreasing margins for the insurer and chasing away the customers that are the least likely to need to make a claim.