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The University of Chicago Business Law Review

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126

Abstract

Should insurance companies be allowed to charge different prices based on a policyholder’s likelihood of making claims? This Article challenges the common view that “risk-based pricing” in insurance presents a tradeoff between the twin goals of efficiency and fairness. It argues that the most compelling justification for charging policyholders prices that reflect their individual risk is grounded not in efficiency, but in egalitarian distributive justice. The Article begins by shifting the focus of distributive analysis from the burdens of insurance (i.e., premium costs) to the benefits of insurance, measured as the consumer surplus each participant gains from coverage. It then demonstrates that risk-based pricing distributes this surplus more equally among high-risk and low-risk insureds than does a uniform “community rate.” This egalitarian perspective helps to explain and justify a puzzling feature of American law: the surprising lack of comprehensive antidiscrimination rules for insurance compared to other sectors like housing and employment. By providing a fairness-based defense of risk-based insurance pricing, the Article reframes the debate. The central conflict is not one of efficiency versus fairness, but rather a disagreement between competing conceptions of egalitarianism.

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