| Savings Bank Life Insurance has spent much of the last 20 years hobbled by a law that essentially requires the company to charge women higher rates for life insurance. Despite the handicap, the company has grown and thrived – but times are changing, and company executives say the problem has become large enough that the situation is “unsustainable.”
For years, SBLI was able to trade on its trusted name in Massachusetts, said May Lee Low, chief actuary for the company. But the company has been expanding, and is now licensed in 40 states where the name “SBLI” doesn’t have the currency it has here – but, even outside Bay State borders, the company must price insurance rates equally, leading to higher prices for women, who usually get quoted lower rates by other insurers.
Because SBLI was a creation of the Massachusetts legislature in 1907, the state can dictate its business practices. Thanks to a 1990 equality law, the company is forbidden from charging men and women different rates. Absent such restrictions, insurers set rates based on life expectancy – and because women tend to live longer than men, they generally pay less in premiums.
Level Playing Field
Today, the company is fighting hard to promote a bill that would allow it to price based on gender, just like every other insurance company.
The “unisex” law was tough enough to deal with when it was passed in 1990, but it’s almost intolerable today, SBLI sources say.
That’s partly a result of changes in the industry: The insurance industry has gotten more sophisticated and transparent in terms of pricing policies, and customers have become solely interested in choosing the lowest rate they can find nationally – instead of simply choosing a local name, Low said. These days, only 12 percent of SBLI’s customers are women, compared to a national average of 45 percent for other companies.
So far, SBLI has apparently managed to out-hustle the restriction, as revenues rose to $401.5 million last year, from $320 million in 2008. CEO Robert Sheridan said the company enjoyed “record sales” in 2009.
Detractors say that’s evidence enough that SBLI is doing fine and doesn’t need to be freed from its restrictions. But, Sheridan told Banker & Tradesman, it’s patently unfair that SBLI should be singled out in this way. Although the company has managed to expand thus far, conditions are such that SBLI – which locally employs 300 people – will certainly falter if these trends continue.
“Like any successful company, we plan to grow, we’d like to sell as much insurance as possible,” he said. “Instead of taking our foot off the pedal, we want to price like anyone else.”
A previous bill that would have lifted the restriction passed both the House and the Senate, only to be vetoed by Gov. Deval Patrick in the name of equality in insurance pricing. Massachusetts also outlaws gender as a factor in pricing for other types of insurance, including auto and health insurance and annuity premiums. Patrick suggested at the time that the Legislature require all life insurers in the state to have unisex pricing models, but few lawmakers approved the idea.
In fact, Montana is the only other state that restricts all life insurance companies in the same manner, said Linda Lankowski, a member of the American Academy of Actuaries Life Products Committee. As for individual companies with that restriction, SBLI appears to stand alone.
The academy, unsurprisingly, lobbies against any attempts by any legislature to use “equality” pricing, rather than sticking to actuarially sound price-setting.
“You really want to have prices set so that they’re equitable, so no group unfairly subsidizes another group,” she said. “We absolutely think you should take gender into account.”
