In an eagerly anticipated decision, the European Court of Justice (the Court) has ruled that from 21 December 2012, sex-based actuarial factors may not be used in calculating individuals' premiums and benefits under insurance and related financial services contracts.
Reasons for the Decision
The 2004 Gender Directive contains a general prohibition against supplying goods and services on different terms based on a person's sex. However, an exemption allows sex-based factors to be used in calculating individuals' premiums and benefits under insurance and financial services contracts where actuarial data shows that sex is a determining risk factor. The Court was asked to decide whether the exemption was lawful.
The Court ruled that the indefinite application of the exemption is incompatible with more fundamental European Union Treaty rights which outlaw discrimination on grounds of sex and require equality of treatment between men and women. Effectively these rights trump the exemption in the Gender Directive. However, recognising the significant implications of the judgment for insurance companies, the Court decided that the exemption can continue to apply until 21 December 2012, the date on which the application of the exemption was required to be reviewed.
There is no right of appeal against the ruling and it can be reversed only by amending EU Treaty provisions, something which is unlikely.
Effects of the Decision
The decision will have far-reaching effects for the way in which insurers set their premiums. This will apply to both general and life business. The effects are likely to include:
- Increases in annuity prices for men
- New drawdown factors
- Car insurance premium increases for women
- Possibly, the end of monoline insurers targeting people of one sex.
It is now clear that premiums for insurance contracts concluded after 21 December 2012 must be gender neutral. However it is less clear what effect the judgment will have on contracts of insurance concluded before, but where premiums are payable after, 21 December 2012. Advocate General Kokott considered this point in her opinion, stating that premiums payable after 21 December 2012 would need to be sex-neutral. The Court did not, however, address this point. This issue might, potentially, be the subject of future references to the Court.
Effects for Occupational Pension Schemes
At first sight, the impact of the judgment on occupational pension schemes looks to be limited. This is because the Gender Directive and the now unlawful exemption do not apply to benefits arising from a person's employment. The requirements of non-discrimination between men's and women's terms of employment and of equal pay for equal work are contained in separate EU legislation. There are also previously decided cases of the Court which have held that sex-based factors may be used in determining matters such as commutation rates, transfer values, the rate for exchanging a member's pension for a dependant’s pension, early retirement discounts and employer funding rates. The ruling may, however, have implications for the factors used in the internal annuitisation of DC benefits and the basis on which schemes can secure benefits by annuity purchase. It is also clear that the principle of equal treatment between men and women is becoming one which is being enforced with increasing rigour by the Court. It is not inconceivable that at some future date it may revisit and change its approach to how sex-based factors may be used in occupational pension schemes.
Case - Association Belge des Consommateurs Test-Achats ASBL and others