01 December 2010
The future of gender discrimination in insurance
Insurers' use of gender as a factor in assessing risk is under threat from an opinion of Advocate General Juliane Kokott submitted to the European Court in September who believes that this goes against the fundamental principles of equality.
If this opinion is accepted by the European Court of Justice next year, the implications for the UK insurance industry could be far reaching.
The Association of British Insurers (ABI) is already in talks with its lawyers should the opinion be accepted, for fear of the knock on effect that the acceptance of the opinion will have. The FSA in November reiterated its position that it accepts the discrimination based on gender despite the opinion.
The Equality Act
The Equality Act 2010 tightens the UK discriminatory regime by prohibiting conduct that discriminates directly or indirectly against someone with a "protected characteristic". Nine such characteristics are listed: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.
A service provider (including a provider of financial services) providing a service to the public or a section of the public must not discriminate against a person by not providing, or by terminating, the service, by the terms it imposes or by subjecting the person to any other detriment.
Most provisions of the Act came into force on 1st October 2010 and now form part of the law of England and Wales and (with minor exceptions) Scotland, but (again with a few exceptions) not Northern Ireland.
The Insurance Exception
The Act restates the exception in previous legislation that allows insurers to use gender as a factor in assessing insurance premiums provided that they are proportionate, based on relevant and accurate actuarial and statistical data which is regularly updated and available to the public.
The exemption in the Act derives from Article 5(2) of the Gender Directive that allows countries to "permit proportionate differences in individuals' premiums and benefits where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data".
This has been relied upon by insurers to undertake actions like charging men a higher motor insurance premium than women.
The schedule also restates the absolute prohibition on differences in insurance premiums and benefits resulting from costs relating to pregnancy or maternity applying to contracts entered into from 22nd December 2008.
Insurance contacts entered into before 01 October 2010 do not have to be altered in the light of the new Act, only if they are amended or renewed after this date. If they are renewed and they do not comply with the Act then the policy will need to be changed.
AG Kokott made a troubling statement regarding the insurance exemption provided for in the Gender Directive.
She believes that as gender cannot be chosen and is inseparably linked to the insured person, differences that can only be statistically linked to gender should not be used when calculating insurance premiums. She stated that "differences between people, which can be linked merely statistically to their sex, must not lead to different treatment of male and female insured persons when insurance products are developed." Therefore she believes that the derogation in the Gender Directive (and now stated in the Equality Act) should be declared invalid under EU law for not being compatible with the principle of equal treatment.
The only consolation is that she doesn't think the invalidity should apply retrospectively to premiums already agreed and that there should be a three year transitional period before the invalidity declaration takes effect. This would give the market some time to adjust and reassess how they calculate insurance premiums.
Although the view is not binding on the ECJ, should they adopt the view, it will have far reaching implications on the UK insurance market. Previous challenges to this derogation have so far been fought off successfully but the opinion of the AG has got Europe's insurance industry on edge.
In real terms if the opinion is accepted it is likely that a female's car insurance premium would increase as an insurer would not be able to take into account that accidents caused by men on average cost a lot more. The payouts for men under life policies would decrease, as insurers could not take into account that women live longer. This would be the same for a widow receiving her husband's life policy. Under the same circumstances, a single woman's payout will increase. Seemingly by creating 'equality', the opinion is simply opening up the floor for a different type of inequality. At least the current 'inequalities' are based on actuarial and statistical data.
The CEA, the European insurance and reinsurance federation is extremely concerned about the knock on effects the adoption of Kokott's opinion will have on the European insurance market. They contemplate that premiums will increase, cover will decrease and some products will be withdrawn from the market altogether. They do not believe that insurers do discriminate, they differentiate and if you treated all insurance customers in the same way, some will be disadvantaged.
Although a decision of the ECJ is binding on all member states, the ABI is talking to its lawyers about what action it could take should the opinion be made binding by the court. The FSA continue to affirm in the light of the opinion that the use of gender as a factor when based on actuarial and statistical data should be taken into account when calculating insurance.
Bruno Geiringer, Partner and Helen Skinner, Trainee Solicitor.