Economic Implications of the Fair Insurance Practices Act

OCE-84-1: Published: Apr 6, 1984. Publicly Released: Apr 6, 1984.

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In response to a congressional request, GAO reviewed the economic implications of the proposed Fair Insurance Practices Act. Specifically, GAO reviewed: (1) how cost considerations vary by type of insurance; and (2) the effect that unfunded liabilities in pension plans would have on the ability of pension plans to meet the minimum funding requirements of the Employee Retirement Income Security Act.

The bill would require that unequal insurance contracts of equally situated males and females be equalized, either by equalizing premiums on contracts with equal coverages or by equalizing coverages on policies with equal premiums. On long-term contracts whose premiums cannot be increased or coverages reduced, coverages would probably have to be increased or premiums reduced for the sex which is disadvantaged by sex-distinct pricing. GAO found that the bill would result in unfunded liabilities totalling between $16 and $32 billion which would directly affect insurance companies and pension plans. GAO believes that most pension plans would be able to effectively fund their increased liabilities with significantly less difficulty than would insurance companies. GAO concluded that, although the redistributive effects of the legislation are impossible to estimate, they would be significant and the administrative costs would be substantial.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress has decided not to take action on the bill revisions GAO recommended.

    Matter: To reduce the adverse effects of potential insurance company insolvencies, to make compliance with the bill more feasible, and to reduce the administrative costs of implementing the bill, Congress should consider eliminating the bill's applicability to existing individual insurance contracts.

  2. Status: Closed - Not Implemented

    Comments: Congress has decided not to take action on the bill revisions GAO recommended.

    Matter: To reduce the adverse effects of potential insurance company insolvencies, to make compliance with the bill more feasible, and to reduce the administrative costs of implementing the bill, Congress should consider increasing the transition period for implementing the legislation to at least 1 year.

 

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