What does unjust discrimination in insurance refer to?

Unjust discrimination in insurance specifically refers to the practice of charging different premiums or providing different terms to policyholders without a valid or justifiable reason based on risk. This means that if policyholders with similar risk profiles are not treated the same way—for example, if one party is charged significantly more for the same coverage without a reasonable basis—this constitutes unjust discrimination.

The focus on unjust discrimination is vital for maintaining fairness in the insurance market. Insurers are expected to base their pricing on objective risk factors, such as claims history or statistical data relevant to determining risk. Thus, if two policyholders present identical risk attributes but are treated differently financially, it could lead to regulatory scrutiny and potential legal consequences for the insurer.

In contrast to other options, providing equal treatment to all policyholders does not illustrate discrimination, while offering lower rates to high-risk applicants is a principle of risk differentiation based on actual risk rather than unjust categorization. Lastly, assessing clients based on credit history can be a legitimate factor in determining premiums, provided it is used appropriately and aligned with regulations, thus making it not a clear instance of unjust discrimination.