In a landmark judgment published today, the ECJ ruled that insurers cannot charge different premiums to women and men based on gender. As anticipated by us and the UK insurance market, the ECJ has agreed with the Advocate General’s recommendations in the Test-Achats case.
The Advocate General recommended that the ECJ should declare Article 5(2) of the Gender Directive (2004/113/EC) invalid because of its incompatibility with the fundamental EU law of gender equality enshrined through the Treaty on European Union. The derogation in Article 5(2) allows Member States to implement national laws which permit proportionate differences in individuals’ premiums and benefits where the use of sex is a determining factor in the assessment of risks based on actuarial and statistical data. The ECJ was asked to rule on the following questions:
- Is Article 5(2) of the Gender Directive compatible with Article 6(2) of the Treaty and more specifically with the principle of equality and non-discrimination guaranteed by that provision?
- If the answer to the first question is negative, is Article 5(2) of the Gender Directive incompatible with Article 6(2) if its application is restricted to life assurance contracts?
The ECJ has declared that Article 5(2) is invalid because “taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination.” In order to accommodate the insurance market, the ECJ has allowed Member States until 21 December 2012 to make adjustments to national laws requiring unisex insurance premiums and benefits.
The ECJ decision is a significant event which will fundamentally reshape the way in which insurance premiums and benefits are calculated. The effect of the changes to the UK legal framework will create volatility in pricing for the months to come as insurers monitor and adjust the pricing process.
Michaela Koller, the director general of the CEA has already voiced disappointment, saying “the decision of the judges not to recognise that gender is a legitimate factor in insurance pricing and that insurance pricing is based on a fair risk assessment process is bad news for insurance customers.”
We will review the full ECJ judgment and publish more detailed analysis in the coming week.