The European Court of Justice ruled that art. 5(2) of the EU Gender Directive would be invalid from 21 December 2012. The objective of the Gender Directive (2004/113/EC) in the context of insurance was to have unisex premiums and benefits. But art. 5(2) had allowed a derogation. In broad terms, it permitted gender to be taken into account when pricing or providing certain insurance benefits on condition that accurate supporting actuarial and statistical data was maintained. The UK government had therefore implemented legislation, which involved the supporting actuarial and statistical data relied on being published and regularly updated.

However, a Belgium Consumer Association and two individuals sued the Belgium government over similar legislation that it had implemented saying that this was contrary to the principle of equal treatment of men and women.

That fundamental right of equality is incorporated in the Charter of Fundamental Rights of the European Union which with effect from 1 December 2009 has the same legal status as the Treaties.

A non-binding opinion was provided by Advocate General Kokott on 30 September 2010, which the European Court of Justice would have considered. Advocate General Kokott said that:

“life expectancy …is strongly influenced by economic and social conditions….the kind and extent of the professional activity carried out, the family and social environment, eating habits, consumption of stimulants and/or drugs, leisure activities and sporting activities…. The correct recording and evaluation of economic and social conditions and of the habits of insured persons is much more complicated and is also more difficult to verify,… ….Practical difficulties alone do not however justify the use, to an extent for reasons of convenience, of the insured person’s sex as a distinguishing criterion. The use of a person’s sex as a kind of substitute criterion for other distinguishing features is incompatible with the principle of equal treatment for men and women”.

In her opinion the Member States should have a period of time to change their domestic law, and a three year transitional period would in her view be appropriate to adapt to the changes.

The UK legislation applies to annuities, critical illness, income protection, life assurance, private medical insurance and motor insurance so these sectors had been on tenterhooks whilst the Court ruling was awaited. Would the European Court of Justice decide upon an immediate ban?

Instead, the European Court of Justice reached a half-way house by implementing the effect of the ban in under 2 years. Insurers will need to rethink what information is collated at underwriting stage and the wide-ranging legitimate factors that could be taken into account when assessing and pricing the risk.

Customers could be more likely to look around for the best price for their circumstances. Annuities for women are typically lower because evidence shows that they tend to live longer, but the effect of this decision could be higher annuity rates for women, and moderately lower annuity rates for men. Life assurance premiums could increase for women. Men could potentially see an increase in income protection rates, whilst the pricing for critical illness cover is fairly similar for men and women.

All in all, this decision whilst based on apparently admirable principles of equality will create quite a stir amongst insurers and their customers, and those with statistically lower risks could find that their premiums increase as a consequence of this decision.