ECJ gender ruling
Impact for professional liability and motor insurers
4 March 2011
The European Court of Justice has this week ruled that insurers
will no longer be able to use gender as a factor in the calculation
of insurance premiums and pension annuity rates.
The ECJ’s ruling in Association Belge des Consommateurs
Test-Achats has determined that taking into account the gender of
an applicant as a risk factor in insurance contracts constitutes
discrimination and will be unlawful from 21 December 2012.
This has implications across the insurance spectrum, with the
gender shown by statistics to represent less risk, now facing the
prospect of cross-subsidising the higher risk posed by the other
sex.
Professional liability underwriters warned that claims
against IFAs will be more expensive
The ECJ’s ruling will have a material effect on pension annuity
rates. Typically, male annuities are less expensive than an
identical annuity for a female because male life expectancy is
lower than that of a woman. The ABI has indicated that the income
an annuity provides for a male could fall by 8%, whereas women
might enjoy a rate increase of around 6%. Given that the majority
of annuity providers are male; this is likely to have a significant
impact.
Obviously, if the cost of annuities increases, dealing with
claims against IFAs will become more expensive where it has been
alleged that unsuitable advice was given in connection with a
transfer from an occupational pension scheme because, the cost of
replacing the retirement income lost as a result of the transfer
will increase.
As the cost of annuities will become increasingly volatile prior
to the likely sharp increase from December 2012, claims could also
arise against IFAs if clients are not advised of the risk that the
same annuity will be more expensive after the December 2012 cut-off
point.
Professional liability underwriters who insure IFAs should
therefore pay extra attention to the volume of pension transfer
business IFAs undertake and, from a risk management perspective,
ensure that the IFAs they insure are well aware of the December
2012 date and the likely subsequent rise in prices for male
annuities.
Insurers to face challenging times in light of the
impact on the motor industry
While annuities for men may become more expensive, male drivers
can expect to benefit from their motor premiums being brought in
line with those of women, who pose a lesser insurance risk.
However, without the ability to use gender as a means of
assessing risk, insurers will need to give careful consideration to
their risk criteria and to the factors which they should use in
setting premiums. This is likely to create a period of market
uncertainty as revised criteria bed in.
Increased premiums, particularly for women, could well have an
adverse impact on levels of uninsured driving and could encourage
incomplete or inaccurate disclosure on insurance applications. The
problem is likely to be exacerbated by current economic conditions
and by the evidence that women continue to be less well remunerated
than their male counterparts.
Insurers whose target market is female drivers will, of course,
be affected but competition within the broader industry may also
increase as policyholders react to changing premiums. Insurers will
face challenging decisions over when and how to begin to align
their premiums for male and female drivers, without losing
business.
Age discrimination – the next step?
Concerns have also been raised over the possibility that future
rulings may prevent insurers from using age when determining
premiums.
The Government this week announced its plans in relation to the
restriction of discrimination based on age in the provision of
goods and services. However, the Government proposes to permit
‘specialist’ providers to target their products at particular age
bands and, to permit age to be used as a factor when assessing
risk, for example in insurance, subject to the assessment being
based on empirical data, made publically available.
These proposals are currently up for consultation and more
information is available on the Government
Equalities Office website.
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general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.