From 21 December 2012, EU insurers can no longer take gender into account when pricing products.
This is as a result of a ruling by the European Court of Justice (ECJ) in March 2011. That ruling invalidated a derogation in the EU’s 2004 Gender Directive that enabled member states to exempt insurers from the unisex principle.
It is important to note that the judges’ reasoning did not consider whether gender-neutral pricing as such was required by the EU Charter of Fundamental Rights but found that an exemption without a temporal limitation was at odds with the Charter. It is thus the construction of the Directive that led to the ruling.
While the judges did not address the way private insurance works, their ruling on the Directive’s structure has the consequence that from 21 December 2012 insurers can no longer differentiate on the grounds of gender when calculating individual’s insurance premiums and benefits.
Products where gender was one of the determining factors for assessing the risk, such as motor, term-life and health insurance and annuities are likely to be affected by the ban.
The ruling is disappointing because it challenges the fundamental principles of risk-based pricing in private insurance. Insurers price products on the basis of the risk to be insured. Economic efficiency is lost if they cannot differentiate between different groups of individuals with different risk levels. While insurers will continue ensuring that their products remain as competitively priced as possible, from an actuarial point of view there is good reason to believe that the ruling could ultimately have an impact on the prices of insurance products where gender was previously used.
In December 2011 Insurance Europe unveiled an independent study, carried out by Oxera, on the impact of a ban on gender in insurance pricing. Based on data from a sample of European countries, it demonstrated a number of likely negative consequences for consumers, insurers and society resulting from a ban. While these would be purely commercial decisions for each individual insurer, it showed that premiums could increase as a result of the redistribution of premiums from high risk to low-risk groups. The study found that, on average:
The study also found that such changes in premiums and benefits could affect consumer demand, leading to wider social implications, including disincentives for people to save for old age.