Media - Gender Ruling on Insurance by the European Court of Justice
Denial of natural selection?
The decision of the European Court of Justice (ECJ) this week that insurance underwriting risk assessment and pricing amounts to sex discrimination has far reaching consequences for both men and women, for employers and for the future of competitively priced insurance based upon actuarial statistics and data.
Two gentlemen in Belgium, M. van Vugt and M. Basselier, supported by Test Achats (a Belgian consumer organization), felt that the higher life insurance premiums they had to pay, as compared with women, was unfair. They commenced an action in Belgium for a ruling that the calculation of premiums based in part on gender was in breach of European law. Their case was referred to the ECJ whose judgment, issued on 1st March 2011, agreed with them.
The EU Directive on the supply of goods and services prohibits all discrimination based on sex in the access to and supply of goods and services. In the case of insurance services there has been an exemption to this unisex rule if insurance services were supplied on the basis of actuarial and statistical data. However, this exemption was “transitional” and intended to come to an end on21 December 2012. Consequently, the ECJ decided that they could agree with the claimants as it was already planned that insurance exemption was to come to end, in any case.
This “transitional exemption” idea appears to be a case of “Too difficult to deal with so pass it on and let someone else worry about it later”.
Treating customers fairly?
This decision flies in the face of common sense and over two hundred years of insurance practice. The insurance industry has developed the ability to calculate risk according to factors that are meaningful, relevant and, in the most part, provable by statistics and experience. The industry has long experienced the fact that risks presented by females are distinguishable from those presented by males. First and foremost, the longevity of life and male and female susceptibility to different illnesses and diseases and needs for care.
The UK legislation which is derived from the European Directive must now be regarded as overturned and such provisions as UK law included for exemptions to the overarching legal requirement to treat men and women equally have been lost. At what cost?
The benefit of this decision to consumers is hard to see. It is patently unfair to charge a premium higher than the statistical evidence shows to be required. In any other terms that would be described as a “rip off”. So is this decision compatible with the FSA requirement to Treat Customers Fairly? Will we be required to drop that idea now?
A case championing equality of sexes appears to have achieved a spectacular own goal.
Had this case not been brought before the ECJ the matter would have come to the fore next year, in any event, but now there is an opportunity to re-think the implications of the Directive; especially the fair treatment (TCF) of men and women in matters concerning the cost of insurance, much of which is no longer an optional luxury for them.
Much has been made, already, in the UK media, of the expected increases in motor insurance premiums for younger women; and these could be dramatic. All insurance products are now affected where gender is a factor in calculating risk and commensurate premium, including travel insurance, private healthcare, personal accident and sickness, life, critical illness, retirement annuities and a host of other insurances including, of course elements of pension schemes. It must be assumed that similar increases for these products will follow since the pressure to raise premium income and profitability will be hard to resist in the face of the ECJ decision.
Is age next?
More worryingly, the logical sequel to this decision is that the same principle could be applied to age. Under other European Directives and, in the UK under the Equality Act 2010, a similar claim to that of Test Achats could be brought on grounds of age discrimination to the effect that the exclusions for insurance services are also not valid.
Young, inexperienced drivers are currently charged several thousand pounds a year for the privilege of insuring their car whereas the over 50s will often pay only a few hundred pounds for similar cover. The over 50s will now presumably be charged four or five times the premium in 2012. There is scant probability that under twenty year olds will be charged the same as the over 50s.
This decimation of the insurance industry’s sensitive and proper calculation and apportionment of premium to risk is the most serious in its unintended financial consequences of any other single legislation or precedent.
Another inflationary pressure for Mr Osborne.
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