Let’s talk about sex
On 1 March, the European Court of Justice decided that insurers pricing risk according to gender is incompatible with the fundamental principles of European Union (EU) law in the ‘Test Achats’ case. The judgement is expected to have a major impact on the European insurance market and will require all insurers to review a wide range of policies to ensure gender-based pricing is removed. Mandy Aitchison reveals the details The change in the law means that the use of separate actuarial tables for men and women in the calculation of premiums and benefits will be outlawed. Particularly affected will be the motor, life and health insurance sectors of the market, where the gender of the proposer is nearly always taken into account in the pricing of the policy. Norton Rose expressed its concern about the knock-on effects of the law: “Following the logic of the Test Achats case, pricing based upon other areas of discrimination such as religion or belief, disability, age or sexual orientation could also be found to be incompatible with EU law.” In principle, continued the law firm, the decision that gender-based pricing is incompatible with EU law could have immediate and indeed retrospective effect as the legislation allowing the discrimination becomes invalid. Policies made under the derogation will be incompatible with EU law. However, the Advocate General has proposed that in order to avoid the consequences of immediate illegality, there should be a transitional period. ITIJ spoke to Ashley Prebble and Noleen John, insurance lawyers from international legal practice Norton Rose LLP, about the decision and the likely fallout. John is concerned about the length of time insurers will have to adapt: “Insurers will from December 2012 need to apply unisex rates. This transitional period is less than that recommended by the Advocate General and means that insurers will need to review their policies and practices as soon as possible. It also seems likely, in view of the length of the transitional period, that insurers may need to use uncertainty premiums until they have sufficient data in relation to the carrying on of business on this new basis. This could result in higher premiums or lower benefits for certain policyholders (female motorists and male annuitants).” Ashley Prebble said: “There is going to be uncertainty in the insurance market for some time as a result of this decision. It is likely that the decision will require the European Commission to clarify the position with regards to other potential areas of discrimination, particularly age and disability, [which] might be done through Protocol, setting out exactly what insurers will be able to do in terms of differentiating the risks posed by different categories of policyholders.” Simon Sheaf, Grant Thornton’s general insurance actuarial practice leader also commented on the possible effects of the change: “There is the potential for anti-selection for any insurers acting ahead of December 2012 and for all insurers over the change-over [period, which] will need to be addressed. This issue applies to a number of general insurance products, such as motor and personal accident, as well as to life and health products meaning that both the life and general insurance industries have major exercises to undertake.” Currently, the change in law is still open to challenge, however, Sheaf added: “The challenges to insurers will now be to find any underlying risk identifiers that sit behind gender differences and to move towards using these as rating factors by December 2012. Ironically, the new Solvency II capital regime creates higher capital requirements where risk factors have been ignored.” Nigel Cooke, Grant Thornton’s senior life actuary, says there is a greater concern that insurers should be focused on: “As a consequence of the judgement, all differential pricing that has occurred since the Gender Directive was implemented in 2004 may yet be challenged as a fundamental infringement of rights enshrined by the EU Treaty, despite the fact that the Directive permitted the differential and will continue to do so until late 2012. Whether this would be the fault of insurers, the regulators or the EU itself would then have to be considered.”
On 1 March, the European Court of Justice decided that insurers pricing risk according to gender is incompatible with the fundamental principles of European Union (EU) law in the ‘Test Achats’ case. The judgement is expected to have a major impact on the European insurance market and will require all insurers to review a wide range of policies to ensure gender-based pricing is removed. Mandy Aitchison reveals the details
The change in the law means that the use of separate actuarial tables for men and women in the calculation of premiums and benefits will be outlawed. Particularly affected will be the motor, life and health insurance sectors of the market, where the gender of the proposer is nearly always taken into account in the pricing of the policy.
Norton Rose expressed its concern about the knock-on effects of the law: “Following the logic of the Test Achats case, pricing based upon other areas of discrimination such as religion or belief, disability, age or sexual orientation could also be found to be incompatible with EU law.” In principle, continued the law firm, the decision that gender-based pricing is incompatible with EU law could have immediate and indeed retrospective effect as the legislation allowing the discrimination becomes invalid. Policies made under the derogation will be incompatible with EU law. However, the Advocate General has proposed that in order to avoid the consequences of immediate illegality, there should be a transitional period.
ITIJ spoke to Ashley Prebble and Noleen John, insurance lawyers from international legal practice Norton Rose LLP, about the decision and the likely fallout. John is concerned about the length of time insurers will have to adapt: “Insurers will from December 2012 need to apply unisex rates. This transitional period is less than that recommended by the Advocate General and means that insurers will need to review their policies and practices as soon as possible. It also seems likely, in view of the length of the transitional period, that insurers may need to use uncertainty premiums until they have sufficient data in relation to the carrying on of business on this new basis. This could result in higher premiums or lower benefits for certain policyholders (female motorists and male annuitants).”
Ashley Prebble said: “There is going to be uncertainty in the insurance market for some time as a result of this decision. It is likely that the decision will require the European Commission to clarify the position with regards to other potential areas of discrimination, particularly age and disability, [which] might be done through Protocol, setting out exactly what insurers will be able to do in terms of differentiating the risks posed by different categories of policyholders.”
Simon Sheaf, Grant Thornton’s general insurance actuarial practice leader also commented on the possible effects of the change: “There is the potential for anti-selection for any insurers acting ahead of December 2012 and for all insurers over the change-over [period, which] will need to be addressed. This issue applies to a number of general insurance products, such as motor and personal accident, as well as to life and health products meaning that both the life and general insurance industries have major exercises to undertake.” Currently, the change in law is still open to challenge, however, Sheaf added: “The challenges to insurers will now be to find any underlying risk identifiers that sit behind gender differences and to move towards using these as rating factors by December 2012. Ironically, the new Solvency II capital regime creates higher capital requirements where risk factors have been ignored.” Nigel Cooke, Grant Thornton’s senior life actuary, says there is a greater concern that insurers should be focused on: “As a consequence of the judgement, all differential pricing that has occurred since the Gender Directive was implemented in 2004 may yet be challenged as a fundamental infringement of rights enshrined by the EU Treaty, despite the fact that the Directive permitted the differential and will continue to do so until late 2012. Whether this would be the fault of insurers, the regulators or the EU itself would then have to be considered.”