What type of discrimination is considered unethical in the insurance industry?

In the insurance industry, unfair discrimination refers to the practice of treating applicants or policyholders differently based on characteristics that are irrelevant to the risk being insured. This can include factors such as race, gender, religion, or age when these factors do not actually affect the likelihood of a claim being made.

Unfair discrimination is deemed unethical because it violates the principle of equity in insurance, where individuals with similar risk profiles should be treated similarly in terms of premiums and coverage. Insurers are expected to base their decisions on objective risk factors, ensuring that all applicants are evaluated fairly, without bias or prejudice. By adhering to this principle, the insurance industry promotes trust and credibility among consumers. When unfair discrimination occurs, it can lead to significant consequences, including legal repercussions and damage to an insurer's reputation.

In contrast, the other terms presented such as fair discrimination, preferred discrimination, and reasonable discrimination do not capture the unethical nature of this practice. Fair discrimination can imply the use of relevant criteria to differentiate between insured parties based on legitimate risk factors, which is acceptable. Preferred discrimination, often practiced by insurers, identifies lower-risk customers to offer them better rates or coverage, which is also a standard and ethical practice in underwriting. Reasonable discrimination might suggest a level of judgment