Test Achats Case – Background
Irish legislation was recently enacted to reflect the Court of Justice of the European Union ruling in the Test Achats case which ruled that the exemption for insurance companies to use gender risk when calculating individual’s premiums and benefits, as set out in the Gender Directive, was no longer legal. The Court allowed insurers a transitional period to 21 December 2012 in which to prepare for this change.
Changes to Premiums
As a result of the new legislation, individuals purchasing or renewing insurance contracts after 21 December 2012 may see a change to the premium charged. The likelihood is an increase in premiums for women in the motor insurance and life assurance markets where women are traditionally charged less than men as they are perceived as lower-risk drivers and having a lower mortality risk.
Company Group Policy
For group insurance policies arranged by an employer for its employees, the rate offered by insurers for a particular group is specific to that group and an average “unit rate” is charged to each member. The Gender Directive allows insurers to continue to use gender as a risk-rating factor when determining the overall risk for a business as long as it does not lead to differentiation at individual level. Furthermore, the Directive only applies to insurance and pensions which are private, voluntary and separate from the employment relationship. Therefore, for the moment it seems, group policies for employees are not subject to the ban.
Changes to Pensions
While it seems clear that Test Achats has no direct impact on defined benefit (DB) schemes (i.e. a promised DB pension will be the same for a man or woman), there is a level of uncertainty regarding the effect of the judgment on defined contribution (DC) schemes where annuities are bought from an individual's DC retirement fund and the amount of the pension received depends on gender. In this scenario, annuities purchased either in the name of the trustees (i.e. whereby all payments are made by the insurance company to the scheme, albeit that the benefit is then passed on to the member) or in the name of a member may now have to be priced on gender neutral terms. Mixed views have been expressed by insurance companies regarding the application of the Test Achats decision to pension annuities and it would appear that not all companies are adopting the same approach. This could give rise to a greater variation in the cost of annuities on offer from insurance companies.
Test Achats has a direct impact on pensions that are private, voluntary and separate from the employment relationship, such as Approved Retirement Funds (ARFs) and Personal Retirement Bonds (PRBs).
Where to Next?
The judgment in the Test Achats case shows that the boundaries of equality legislation may be broader than previously thought. There has been debate about whether discrimination on grounds of age or disability could prove to be prohibited conduct. In the event of this occurring, equality legislation could effectively force the European Union into a community-rated insurance market.