Equality between men and women is a fundamental principle of the European Union. This is established in the Treaty of the EU and in the Charter of Fundamental Rights of the EU, which prohibit any discrimination on grounds of gender and require equality between men and women to be ensured in all areas.
Yet gender has been actively used by insurance companies in their assessment of risk. Insurance companies in fact price certain types of policies and products on the basis of gender. Young women, for example, are statistically viewed as safer drivers than their male counterparts. This means that they are likely to have fewer accidents and consequently their car insurance policies are less costly.
Men, on the other hand, secure cheaper premiums when they buy life annuities than women. Since they have statistically a lower life expectancy, they are given higher annuity payments based on their typical shorter claim periods. A recent ruling of the European Court of Justice (ECJ) has flipped the scales in favour of equality, confirming the EU’s approach of zero-discrimination.
The ruling came about after a preliminary reference to the ECJ was made by the Belgian Constitutional Court, which was hearing an action brought by the Belgian Consumer Association and two individuals whereby they attacked the transposition in Belgium of the EU Equality Directive. That directive enshrines the principle of equality, but allows member states to permit proportionate differences in premiums on the basis of gender when the assessment of the risk is based on accurante and actual statistical data.
The Equality Directive was however silent as to how long member states could rely on the derogation, running the risk that the derogation could persist indefinitely. Within the context of that action, the Belgian Court asked the ECJ to assess the validity of the derogation provided for in that Directive in the light of the principle of equality for men and women.
The Court of Justice ruled that gender cannot be considered any longer as a legitimate risk factor in the assessment of risks by insurances when issuing insurance policies. Gender-based pricing by insurances would therefore constitute an act of discrimination, and it would have to 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 court’s ruling has set in motion an overhaul of how life, travel, auto and health policies are assessed across Europe. The judgement will necessarily affect pricing of these insurances across Europe. Ironically, in the car insurance market, elimination of gender-based pricing may actually increase the annual insurance costs for women to come in level with those for men, particularly in the member states where women are charged lower car insurance premiums than men.
While the decision bans price discrimination based on gender, it still allows other types of discrimination in insurance pricing. It is likely that the decision will require intervention from the European Commission in order to clarify the position in other potential areas where discrimination is exercised, particularly age and disability.
jgrech@demarcoassociates.com
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.