ECJ ruling bans insurers from charging men and women different premiums

01 Mar 2011

The ECJ issued a landmark ruling today which effectively bans the insurance industry from charging different premiums for men and women.

The decision concerns the case of Association Belge des Consommateurs Test-Achats and others. The case was brought by the Belgium Consumers Association and is concerned with the legality of gender based risk pricing in insurance contacts.

At the moment Article 5 of the EU Gender Directive as enacted in the UK via The Equality Act 2010 allows insurers to charge different premiums for men and women if sex is a “determining factor” in the assessment of risk and where it is based on “relevant and accurate actuarial and statistical data”. In the real world this means that insurers commonly have different premiums for men and women because, for example, men are more likely to have road traffic accidents or women live longer, according to statistical data.

In September last year the Advocate General gave a preliminary view that the use of gender as a risk factor in insurance contacts was invalid. Effectively it is argued that it contravenes the basic principle of equal treatment for men and women which underpins European Union Law. The Advocate General’s preliminary ruling is not binding on the ECJ but generally it has a persuasive effect.

Today the ECJ upheld the preliminary view of the Advocate General and this will now have major implications for the insurance industry. The industry will no longer be able to use gender as a relevant factor in pricing and the same reasoning is likely to apply by analogy to other factors such as age.

The ruling orders the changes to take place by 21 December 2012. This at least gives the insurance industry some time to consider its implications and to work out how to implement changes in their systems for pricing insurance products. The industry as a whole will not welcome these changes as the current system is statistically fair and allows people to get a more accurate premium for their circumstances. Test-Achats says there are other ways insurance companies can make a distinction, for example, by taking the accident history of a driver into account. However, this ignores the fact that, for example, some consumers will be purchasing insurance for the first time and will have no relevant claims record to draw upon.

Kelvin Farmaner a Partner at Trethowans commented; “It is not immediately clear precisely how insurance prices will be affected but the likelihood is that this will put an increased burden on the insurance companies in terms of working out pricing and therefore the overall costs burden is likely to rise.”