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 – in a decision delivered earlier on last year, the Court ruled that as from 21 December 2012, insurers may no longer discriminate between male and female customers in terms of insurance premiums and benefits.
Following the initial shock reaction to this ruling, the Commission has responded to industry concerns by issuing guidelines ("the Guidelines"), on 22 December 2011, addressed to Europe's insurance industry to facilitate compliance with the Court's ruling at a national level. They are issued without prejudice to any interpretation the Court of Justice of the European Union may give on the topic in the future.
The Test-Achats Ruling:
By way of background, in its ruling in the Test-Achats case (C-236/09), delivered on 1 March 2011, the Court of Justice gave insurers until 21 December 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 Article 5 of the Council Directive 2004/113/EC. In terms of Article 5(1) of that Directive, 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 (the unisex rule). However, Article 5(2) of the Directive allowed Member States to derogate from this rule in certain circumstances and maintain proportionate differences in individuals' premiums.
The Court held in the ruling that by enabling Member States to maintain without temporal limitation an exemption from the unisex rule laid down in Article 5(1), Article 5(2) runs counter to the achievement of the objective of equal treatment between men and women in relation to the calculation of premiums and benefits, which is the purpose of Directive 2004/113/EC. As a result, the ECJ found that this derogation was incompatible with Articles 21 and 23 of the EU Charter of Fundamental Rights of the European Union and invalid as from 21 December 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, while this judgment, at first sight, appeared to have heralded a true progress on gender equality, it has raised concerns among insurers all over Europe who have reacted to this ruling with incredulousness and scepticism.
There are two reasons that justify the initial shock reaction: firstly, gender is a determining risk-rating factor for three of the main insurance policies: motor, life insurance/annuities and private health. All Member States currently allow gender differentiation for at least one type of insurance so this ruling will have implications in all Member States; 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 a result, it is common practice that a careful young male driver pays more for his motor insurance just because of the fact that he was born male. 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:
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 21 December 2012 either: for the first time; or to extend contracts concluded before that date but which would otherwise expire. Therefore the Test-Achats ruling means that for these contracts, the unisex rule has to be applied without exception, owing to the invalidity of Article 5(2) from the 21 December 2012 cut-off date.
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 to these scenarios.
Since national contract law of the Member States is far from harmonised, diverging interpretations of the term "new contracts" could create a risk of different transitional periods thereby delaying the application of the unisex rule and enhancing an uneven playing field for participants in the market. In light of the need for uniform application of European Union law and to ensure the equal treatment of men and women in relation to individuals' insurance premiums and benefits, the Guidelines consider it necessary that the definition of the term "new contracts" be given an independent and uniform interpretation throughout the European Union.
The unisex rule, the Guidelines explain, will apply wherever both of the following conditions are satisfied: i) a contractual agreement requiring the expression of consent by all parties is made, including an amendment to an existing contract; and ii) the latest expression of consent by a party that is necessary for the conclusion of that agreement occurs as from 21 December 2012.
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 lift 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).
The Guidelines also tackle factors that are not correlated with gender. The ruling only addresses the use of gender as a risk-rating factor. Hence it does not affect the use of other risk-rating factors such as age and disability which are currently not regulated at European Union level.
Comment:
With the Guidelines now accessible, it is up to the Member States to assess the implications of the Test-Achats Ruling and to bring their laws in line with the ruling before the 21 December 2012 deadline. Insurers are then to apply the unisex rule as required by the judgment as from that date. The Guidelines offer welcome clarifications on the manner in which compliance with the ruling can be ensured.
Yet not only do the Guidelines facilitate compliance with the ruling, they seem to 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 has expressed its intention in the Guidelines that it will remain vigilant in order to detect any unjustified rise in prices.
The overall feeling following the publication of these Guidelines appears to be 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 shock caused by the ruling, it might actually result in a true victory for male and female consumers, and equality rights enthusiasts alike.
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