Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination.
The methods used by Insurance companies to calculate premiums have been thrown into turmoil following the European Court of Justice (ECJ) ruling of the 1st of March 2011.
The case concerned Directive 2004/113/EC1 which prohibits all discrimination based on sex in the access to and supply of goods and services and prohibits the offering of different insurance premiums based on a person’s sex. It has an exemption for “proportionate” differences, though, “where the use of sex is a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data“.
The case was brought by the Belgian consumers’ association which challenged the different pricing structures for men and women – an established measure of risk for calculating premiums. They argued that gender must not be used as the basis for different pricing of products for men and women.
In the preliminary ECJ opinion on the case published in September of last year, Advocate General Juliane Kokott, said that the ECJ should eliminate the right to charge different prices based on the sex of the insured person.
She said that the different pricing did not meet the high standards set in the Directive’s exemption, and that equal treatment for the sexes was of such vital importance that it should not be undermined except in the clearest of cases.
“The exception in question does not relate to any clear biological differences between insured persons,” she said. “On the contrary, it concerns cases in which different insurance risks can at most be associated statistically with gender.”
“Strict standards must therefore be imposed in the present case. Differences in treatment could at most be justified by clearly demonstrable biological differences between the sexes,” said an ECJ statement outlining her opinion.
The opinions of advocates are in general only advice, but are followed in the majority of cases by the ECJ as has occured in the present case. This ruling states that this practice is discriminatory and contravenes equality rules and must therefore be phased out by December 2012. This effectively means that in the future men and women will be assessed in the same way when they apply for products such as car insurance, life cover and annuities.
The ruling will have a significant effect on the insurance industry which has used the system of gender based risk pricing to award discounts or to charge premiums.
The requirement for unisex insurance premiums and benefits will start on 21 December 2012, giving national governments and the European insurance industry time to adjust.
Following which time it is expected that women will see increased premiums costs for car insurance whilst men would see a reduction in annuity rates, and the cost of life insurance could increase for women but fall for men.
The insurance industry fears that the ruling could pave the way for a legal challenge to insurers’ reliance on their customers’ age in setting prices and payouts.