The insurance sector has been reacting to today’s ruling by the European Court of Justice banning gender discrimination when it comes to insurance policies. They believe it will affect two groups in particular: women drivers whose premiums will rise and men coming up for retirement who may see the returns on their annuities fall.
Dr Ros Altmann, Director General of The Saga Group, warned that it could push more UK pensioners into poverty. “In defiance of common sense and logic,” she explained, “insurers will be barred from pricing their products on the basis of risk. The delay to 2012 is a bit of relief, but not much comfort for those who will be affected. And of course 2012 is the year that the UK will start to automatically enrol all workers into pension schemes.”
The point here is that four-fifths of annuities are bought by men. As a result of the ruling, annuities will become more expensive for the vast majority of buyers. Currently, men buy around eight out of every ten annuities sold in the UK and all of them risk receiving much lower pensions as a result of this decision.
In Dr Altmann’s view, “this means that future UK pensioners will be even poorer than they otherwise would be. If an insurance company does not know whether the person buying the annuity is male or female, it is inevitable that they will increase the risk margin ‘just in case’ they are selling to a woman, so men will all face potentially worse annuity rates and, therefore, will receive much lower pensions for the rest of their life.”
UK pensioners, she concludes, will be “hit worst as other countries don’t have mandatory annuitisation (sic). This will hit future UK pensioners much harder than the rest of Europe, because it is only in this country that Government rules tend to require people to annuitise their pension funds. Our state pension is already about the lowest in Europe so the impact here is very worrying.”
Her view is shared by Malcolm Small, Director of Policy at TISA, who said that this was “not a good consumer outcome. I anticipate that annuity rates for women – who are already under pensioned, compared to men – will fall as a result. Decisions made by Europe are adding another layer to an already complex regulatory framework for pensions. We need an urgent debate on the level of regulation as we have reached a potential overkill situation with no discernable benefit to the consumer.”
MGM Advantage, the retirement income specialist, claim that men could see their annuity rates fall by up to 5% while women’s rates could rise by nearly 8%. The company’s sales and marketing director, Aston Goodey, points out that the annuity industry had “…been moving towards pricing that is far more individual and therefore fairer to the customer. While this gender ruling will create winners and losers, the truth is that it’s another blow to the conventional annuity and thousands of people approaching retirement. The downward trend in annuity rates is forcing more and more people to look at other options such as flexible annuities in order to stand a chance of making their money last in retirement.”
On the wider issues, the Association of British Insurers describes the ruling as “disappointing news for UK insurance customers”. It points out that they’d fought against the possibility of this for the last decade and will now do everything possible to manage negative effects for customers.
Its acting director general, Maggie Craig, explained that the “judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance. It will be crucial to ensure this news does not put people off having vital insurance that protects them against accident or illness, or provides an income in retirement.
“Adaptation during this transition period until December 2012 will be challenging, but all insurers will be doing everything they can to ensure as smooth a change as possible for customers. Insurers will comply with the law and work proactively with the Financial Services Authority to ensure stability for the UK insurance market, its customers and investors.”
Its own research confirms that the changes will be substantial. For example, women under the age of 25 could see an average rise of 25 per cent to their motor insurance premiums. Men approaching retirement could see an 8 per cent reduction in annuity rates while rates for women approaching retirement could rise by six per cent. Women could see a rise of as much as 20 per cent in the cost of life insurance cover, while men could see a fall of 10 per cent.
The companies offering motor insurance had the harshest words on the judgement. Adrian Brown, UK Chief Executive of RSA and its direct arm MORE TH>N, insisted that the Court’s decision “flies in the face of common sense. It is completely disadvantageous to the very people it was intended to protect and prevents insurers from using a legitimate rating factor. Once again consumers are going to have to pay the price for an illogical change in the law.”
The marketing director of confused.com, Mike Hoban, described the ruling as “effectively a gender tax on women. It is extremely unfair and illiberal that women will be penalised for the fact they cause less serious accidents and make less expensive claims than their male counterparts. Gender is an important factor in determining the risk of a driver making a claim and by not taking it into account women are being unjustly taxed.”
Gocompare.com’s director, John Miles, said that few drivers would welcome this ruling. “It won’t make insurance fairer,” he explained, “but it will make it more expensive in many cases and make the calculation of premiums less transparent for everyone.
“While insurers have been preparing for this outcome for some time, no one knows exactly how they are going to price for it and different insurers may take different approaches. If they are unable to use gender as a risk, they may need to increase prices to cover the risk of losses. In the longer term, drivers will be looking to insurers to develop more innovative solutions. Telematics based ‘pay-as-you-drive’ products could be further developed to allow insurers to more accurately match a driver’s insurance premium to their actual risk.”
There is of course only one insurance provider whose products are aimed almost exclusively at women drivers: “Sheilas’ Wheels”. In a statement, it warned that the ruling would cause premiums to rise artificially in a way that no longer truly reflects women’s risk as drivers or the cost of their claims.
Its head of communications, Adrian Webb, said that the company had “always insured men but most males simply aren’t attracted to our brand and we don’t see this changing. We brought car insurance up to date by including benefits designed with women in mind that were absent in the market. Our handbag cover recognises that even a handbag, let alone its contents, is worth more than most policies’ personal possessions limits.
“Despite this ruling, we will continue to market to women and to celebrate our pink brand because it does not prevent female-focused marketing. Over the course of the transition, we will make the changes necessary to comply but the huge proportion of women already with (us) will help us to maintain our highly competitive position.”
The ruling in full
As reported in The Caledonian Mercury last month, the European Court of Justice has ruled that taking the gender of an insured individual into account as a risk factor in insurance contracts constitutes discrimination. Its judgement means that unisex premiums and benefits will apply with effect from 21 December 2012. This is the ruling in full.
Court of Justice of the European Union: Directive 2004/113/EC1 prohibits all discrimination based on sex in the access to and supply of goods and services.
Thus, in principle, the Directive prohibits the use of gender as a factor in the calculation of insurance premiums and benefits in relation to insurance contracts entered into after 21 December 2007. By way of derogation2, however, the Directive provides that Member States may, as from that date, permit exemptions from the rule of unisex premiums and benefits, so long as they can ensure that the underlying actuarial and statistical data on which the calculations are based are reliable, regularly updated and available to the public. Member States may allow such an exemption only if the unisex rule has not already been applied by national legislation. Five years after the transposition of the Directive into national law – that is to say, on 21 December 2012 – Member States must re-examine the justification for those exemptions, taking into account the most recent actuarial and statistical data and a report to be submitted by the Commission three years after the date of transposition of the Directive.
The Association Belge des Consommateurs Test-Achats ASBL and two individuals brought an action before the Belgian Constitutional Court for annulment of the Belgian law transposing the Directive. It is within the context of that action that the Belgian court asked the Court of Justice to assess the validity of the derogation provided for in the Directive in the light of higher-ranking legal rules and, in particular, in the light of the principle of equality for men and women enshrined in EU law.
In today’s judgment, the Court first points out that, under Article 8 TFEU, the European Union is to aim, in all its activities, to eliminate inequalities and to promote equality between men and women. In the progressive achievement of that equality, it is for the EU legislature to determine, having regard to the development of economic and social conditions within the European Union, precisely when action must be taken. Thus it was – the Court states – that the EU legislature provided in the Directive that the differences in premiums and benefits arising from the use of sex as a factor in the calculation thereof must be abolished by 21 December 2007 at the latest. However, as the use of actuarial factors related to sex was widespread in the provision of insurance services at the time when the Directive was adopted, it was permissible for the legislature to implement the rule of unisex premiums and benefits gradually, with appropriate transitional periods.
In that regard, the Court notes that the Directive derogates from the general rule of unisex premiums and benefits established by the Directive, by granting Member States the option of deciding, before 21 December 2007, to permit proportionate differences in individuals’ premiums.
Any decision to make use of that option is to be reviewed five years after 21 December 2007, account being taken of a Commission report, but, ultimately, given that the Directive is silent as to the length of time during which those differences may continue to be applied, Member States which have made use of the option are permitted to allow insurers to apply the unequal treatment without any temporal limitation.
Accordingly, the Court states, there is a risk that EU law may permit the derogation from the equal treatment of men and women, provided for by the Directive, to persist indefinitely. A provision which thus enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits works against the achievement of the objective of equal treatment between men and women and must be considered to be invalid upon the expiry of an appropriate transitional period.
Consequently, the Court rules that, in the insurance services sector, the derogation from the general rule of unisex premiums and benefits is invalid with effect from 21 December 2012.