In December 2010 we reported on the potential impact on consumers and insurers alike should the European Court of Justice (ECJ) follow the Advocate General’s opinion in Association Belge des Consommateurs Test-Achats (Case C-236/09). The insurance industry’s fears have now been realised as the ECJ’s decision of 1 March 2011 rules that the use of gender as a risk factor in assessing insurance premiums will be invalid with effect from 21 December 2012.
Article 5(1) of the European ‘Gender’ Directive (2004/113) provided that differences in premiums and benefits arising from the use of sex as a risk factor had to be abolished by 21 December 2007. Article 5(2), however, contains a derogation to the effect that Member States can allow “proportionate differences” in insurance premiums and benefits where the use of sex is a “determining factor” in the assessment of risk “based on relevant and accurate actuarial and statistical data”.
In its judgment, the ECJ gives two main reasons for its decision:
- The Article 5(2) derogation was merely intended to provide a transitional period, during which insurers could continue to use gender as a risk factor.
The ECJ states in its judgment that, as the use of actuarial factors related to sex is so widespread in the insurance industry, the purpose of the Article 5(2) derogation was to allow for a gradual transitional period before the principle of equal treatment would be applied across the board. Highlighting the risk that EU law could have permitted the derogation to “persist indefinitely” due to a lack of “any temporal limitation” on this transitional period, the court took matters into its own hands and imposed an expiry date of 21 December 2012, after which Article 5(2) would be invalid.
- For the purposes of applying the principle of equal treatment, the situations of men and women with regard to insurance premiums are comparable.
In line with the underlying basis of assessing insurance premiums, the ECJ states that it has “consistently held that the principle of equal treatment requires that comparable situations must not be treated differently, and different situations must not be treated in the same way”. The court adds an exception, however, where “such treatment is objectively justified”. It is the ECJ’s view that the Gender Directive is based on the premise that “the respective situations of men and women with regard to insurance premiums and benefits contracted by them are comparable” and as such the Article 5(2) derogation “works against the achievement of the objective of equal treatment between men and women”.
Although this ruling is intended to achieve equal treatment for men and women, in practice, it will create a paradoxical system whereby the lower-risk sex will be forced to pay a cross subsidy for the higher-risk sex on their insurance premiums. Within an hour of the judgment being released, it had become a UK trending topic on Twitter, with tweeters describing it as “absurd” and “political correctness gone mad”.
The overwhelming industry reaction to this ruling is one of dissatisfaction. Maggie Craig, acting Director General for the Association of British Insurers (ABI), has commented that “This gender ban is disappointing news for UK consumers and something the UK insurance industry has fought against for the last decade. 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 remains to be seen whether the industry will attempt to protect itself from the adverse effects of this decision by turning to other risk factors, such as occupation or vehicle type, as a proxy for gender. It is possible, however, that such a practice would constitute indirect discrimination under Article 4(1)(b) of the Gender Directive and that the matter will once again find itself before the courts.