Reasonable Restrictions on Underwriting Joseph Heath University of Toronto Toronto, ON Canada Email:
[email protected] Voice: 416-978-8094 Biography Joseph Heath is Associate Professor in the Department of Philosophy at the University of Toron to. He is the author of three books: Communicative Action and Rational Choice (MIT Press, 2001), The Efficient Society (Penguin, 2001), and with Andrew Potter, Nation of Rebels (Harper Business, 2004). His recent publications in the field of business ethics include, with Wayne Nor man, “Stakeholder Theory, Corporate Governance and Public Management,” in the Journal of Business Ethics and “Business Ethics Without Stakeholders,” Business Ethics Quarterly (forth coming). Abstract Few issues in business ethics are as polarizing as the practice of risk classification and underwrit ing in the insurance industry. Theorists who approach the issue from a background in economics often start from the assumption that policy-holders should be charged a rate that reflects the ex pected loss that they bring to the insurance scheme. Yet theorists who approach the question from a background in philosophy or civil rights law often begin with a presumption against so- called “actuarially fair” premiums and in favor of “community rating,” in which everyone is charged the same price. This paper begins by examining and rejecting the three primary argu ments that have been given to show that actuarially fair premiums are unjust. It then considers the two primary arguments that have been offered by those who wish to defend the practice of risk classification. These arguments overshoot their target, by requiring a “freedom to under write” that is much greater than the level of freedom enjoyed in most other commercial transac tions.