At a time when all participants in the financial market are bracing themselves to face important challenges, the Court of Justice of the European Union has added an extra hurdle for insurers across Europe – as from December 21, 2012, insurers may no longer discriminate between male and female customers in terms of insurance premiums and benefits.

Insurers may no longer discriminate between male and female customers in terms of insurance premiums and benefits- Jeanette Ciantar

Following the initial shock reaction to this ruling, the Commission has responded to industry concerns by issuing guidelines on December 22, 2011, addressed to Europe’s insurance industry to facilitate compliance with the court’s ruling at a national level.

By way of background, in its ruling in the Test-Achats case, the Court of Justice gave insurers until December 21, 2012 within which to treat male and female customers equally in terms of insurance premiums and benefits. As from that date, an exemption in EU legislation which allows member states to differentiate between men and women in the calculation of premiums and benefits will be declared invalid.

The legislation in dispute refers to the Council Directive implementing the equal treatment between men and women in the access to and supply of goods and services. This directive imposes the “unisex rule” on all member states. According to this rule, the use of gender as an actuarial factor in the calculation of premiums and benefits may not result in differences in individuals’ premiums and benefits. That directive however provided an exception to this rule: member states were allowed to derogate from this rule in certain circumstances and maintain proportionate differences in individuals’ premiums. The court found that this derogation was incompatible with the EU Charter of Fundamental Rights and invalid as from December 21, 2012.

This ruling has caused a number of concerns among insurers who are now required to amend their contracts and premiums in order to ensure timely and full compliance with the judgment. Yet from an equality perspective, this judgment appears to have heralded a true progress on gender equality, so why the big fuss?

There are two reasons that justify the initial shock reaction: firstly, gender is a determining risk-rating factor for at least three main insurance policies: motor, life insurance/annuities and private health; and secondly, premium price levels may suddenly increase for women as a result of the ruling. Women have fewer car accidents than their male counterpart and this contributes to lower risk and lower premiums.

As the Commission put it, a careful young male driver pays more for motor insurance just because he is a man. When men have more accidents, they become more expensive. Since this differentiation will no longer be valid as from the end of this year, premium levels for females may go up.

The guidelines attempt to soften the blow caused by this ruling in a number of ways. As a start, they limit the application of the ruling to “new contracts that is, contracts concluded as from December 21, 2012 either: for the first time; or to extend contracts concluded before that date but which would otherwise expire.

Therefore, the automatic extension of pre-existing contracts if no notice is given or adjustments made to individual elements of an existing contract, such as premium changes, will not constitute a new contract and hence the ruling will not apply in these scenarios.

It is important also to note that the ruling does not prohibit the use of gender as a risk-rating factor in general. Gender may indeed still be used in the calculation of premiums and benefits at the aggregate level provided it does not lead to differentiation at the individual level. The guidelines clarify that it remains possible to use gender-related information for reserving and internal pricing; reinsurance pricing; marketing and advertising; and life and health underwriting.

The Commission also considers it still possible for insurers to offer gender-specific insurance products to cover conditions which concern primarily males (such as prostate cancer) or females (such as uterus cancer).

Yet not only do the guidelines facilitate compliance with the ruling, they go one step further. They demonstrate the Commission’s commitment to closely monitor increases in premium levels in order to avoid any unnecessary increases attributed to the ruling. The guidelines are clear and tend to somewhat diminish initial fears that women will be worst hit by this ruling. The Commission will remain vigilant in order to detect any unjustified rise in prices.

The overall feeling following the publication of these guidelines is therefore one of mitigation. The sharp edges of the ruling have been somewhat evened out by the Commission: both in its limitation of effects as well as in its promise to be relatively unsympathetic towards unjustified premium price increases blamed on the ruling.

While this sounds good on paper, should this feeling be truly implemented in practice, it may well be that despite the initial turmoil caused by the ruling, it might actually result in a true victory for male and female consumers, and equality rights enthusiasts alike.

www.fenechlaw.com

(This article is not intended to offer professional advice and one should not act upon the matters referred to in it without seeking specific advice.)

Dr Ciantar specialises in EU & Regulatory law at Fenech & Fenech Advocates.