ETHICAL IMPLICATIONS OF

ABORIGINALS IN LIFE
INSURANCE

Kelvin Duong
Z5018401

Aboriginal people have a life expectancy at birth that is about 10 years lower than that of a
non-Aboriginal (ABS 2011). The Aboriginal population also has a significantly different age
structure due to the higher rates of infant mortality and middle aged mortality. According to AntiDiscrimination Act 1977 it is illegal to discriminate on the basis of age, disability, race and sex in
employment and provision of goods and services, however this is subject to exemption in relation to
insurance. Insurers may discriminate based on actuarial and statistical data. As such insurers will be
able to set a higher premium for life insurance for Aboriginal people since they would have a higher
Actuarial Present Value. Almost 90% of the population believe that insurance brokers are unethical
or dishonest (Roy Morgan Research 2015) through their ability to charge people different amounts
for what can be considered to be the same product. This paper will examine whether it is ethical to
charge Indigenous people higher premiums from a business and societal perspective.
Discrimination is present in the insurance business due to different factors causing
differences in mortality rates and life expectancy. However, there is an inherent difference between
discrimination on the basis of sex and discrimination on whether a person is Aboriginal. There are
no differences in socioeconomic factors between a male and female however there are significant
differences between Aboriginals and non-Aboriginals (ABS 2013). Compared with nonAboriginals, Aboriginal people are disadvantaged in many socioeconomic factors including
education, employment and income. This coupled with the higher rates of drug abuse and smoking
is able to partially explain why Aboriginal mortality rates are higher than non-Aboriginals.
However, it is difficult to conclude whether these are the only factors that contribute to the higher
mortality rates. Insurances firms do not explicitly ask whether a person is Aboriginal when setting
the price of the premium however many of the above factors such as employment, smoker status
and education are considered when valuing the premium. This is ethical since the valuation of
premiums do not discriminate on the basis of a person being an Aboriginal, but a variety of other
factors that are common regardless of your race. This information should be disclosed to the
customer or an independent third party to ensure transparency and the process is fair. The issue of

Aboriginals being charged higher premiums is a more fundamental issue relating to higher mortality
rates due to socioeconomic factors. Aboriginal people are three times as likely to die due to
avoidable causes and suicide. These issues will have to be solved through encouraging participation
in workforce and higher education through initiatives such as Closing the Gap and ABSTUDY as
well as provide greater amount of services to Indigenous community. Currently there have been no
significant change in the gap between Indigenous and non-Indigenous mortality over the last 10
years (Australian Institute of Health and Welfare 2012). This will need to change before it will be
possible for premiums to be lowered.
Consider the following alternatives where all people are charged the same premium for the
same insurance policy.
1. Everyone is charged the same premium as a low risk (low mortality) individual
2. Everyone is charged the same premium as a high risk (high mortality) individual
Under the first situation adverse selection will make it extremely likely that a firm will not be able
to pay out its claims as high risk individuals will be more likely to purchase insurances with the
lower premium. In the second situation, it is likely that lower risk individuals will stop purchasing
insurances as premiums have now become unaffordable. This will also end in adverse selection
where the insurance portfolio has an abundant amount of high risk individuals. Under both
circumstances adverse selection is likely and will reduce diversity causing insurance portfolios to
become riskier. Insurance companies will have to increase premiums to allow for the additional risk
being taken, thus the underlying issue has been compounded. This is also unsustainable in a
competitive market as participants are not being charged the fair value for their products, thus
allowing competitors to offer more competitive rates. Hence it is ethical for insurers to charge
different premiums to people with different risk profiles as it is required for insurance companies to
continue to provide the services and to maximise the availability of insurance. Premiums are always
charged above the actuarial fair value to provide profit as well as to provide extra cash flow for
unexpected situations where there may be many claims. One possible way to improve affordability

for low income earners would be to reduce the amount of loading charged on their premium. This
will make insurance more attractive for Aboriginal communities and will not be subject to adverse
selection.
There are some companies that operate solely by providing insurance services to Indigenous
people. These companies will still charge different premiums based on the different individual
factors between people. Since they only target Aboriginal communities, the premiums charged are
much higher than the actuarial value of the insurance products. In the funeral insurance industry,
more than 50% of Aboriginal policy holders are aged less than 20. This suggests that the Indigenous
community is unaware of how these policies work and whether they really need to be covered.
Many people exit the policy after several years as they can no longer afford. Even if they proceed
with the policy they may end up paying $100000 throughout their lifetime for benefits of around
$15000. This is unethical as the community is being misguided into entering insurance policies that
are either too costly or unnecessary at this point in their lives.
Under the Anti-Discrimination Act 1977, insurance is given an exemption from
discrimination laws if reasonable statistics can be provided. There is strong statistical evidence that
Aboriginal mortality rates. The reason for the higher mortality rates is the socioeconomic factors
and not because they are an Aboriginal. They are charged a higher premium because of their
socioeconomic factors, not because they are an Aboriginal. This issue lies in society and not in the
insurance sector. We need to introduce more policies to improve the living and health conditions of
the Indigenous community. Education should be provided to ensure they Indigenous people have
sufficient knowledge to decide whether it will be beneficial to purchase an insurance policy. We
should aim to reduce costs for people with low income, and to disclose all information related to
valuation to ensure the process is transparent. It is unethical to charge a person a higher premium
because they are an Aboriginal, but it is ethical to charge different premiums due to different living
conditions as this is the basis for insurance. When the socioeconomic factors between Aboriginals
and non-Aboriginals converge, then the difference in premium prices will naturally diminish.

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