On October 1, 2012, a new law on age discrimination made it unlawful for service providers to discriminate against customers and consumers on grounds of age. Happily for insurers, they - similar to other financial services businesses - have a specific exemption that allows them to take into account age as a factor in deciding whether to enter into a contract with a prospective insured, and if so on what terms. This recognises that age is a relevant factor in assessing risk profiles.
In stark contrast, we are less than three months from sex discrimination in pricing insurance becoming unlawful. In anticipation of this, the Association of British Insurers (ABI) has just published new guidance for consumers. Currently there is an exemption which allows gender differences in risk profiles to be taken into account, but this will no longer be permitted from December 21, 2012 as result of the European Court Decision of Test Achats. At the time of the decision, the case received a lot of publicity, but what does it actually mean, and what will be the practical outcomes of this change in the law?
There are two main forms of unlawful discrimination: direct and indirect. The principal manifestation of direct gender discrimination in insurance is charging male customers higher premiums than female customers even where their risk profile is otherwise the same. The motor insurance market has been subject to particular media comment in this regard. The change in the law is likely to lead insurers to look more closely at other risk factors, but care will need to be taken with the indirect discrimination risks this could create.
Indirect gender discrimination could arise in insurance where the application of certain factors in assessing a risk profile are disproportionately disadvantageous to one gender, resulting principally in higher premiums or a declinature of cover. A manifestation of indirect discrimination could also be the application of certain exclusions, warranties or conditions precedent which could be more detrimental for one gender.
To continue with the example of motor insurance, it is possible to postulate terms of cover which would disallow, or penalise in price, certain attributes of car ownership, which would be readily identifiable as materially more redolent of ownership by men than women, such as:
- choice of car, especially high performance cars; or
- types of modification to cars - for instance, external paintwork styling; additional aerodynamic features; exhaust pipe dimensions.
A number of motor insurers are looking to make increasing use of telematics, using IT and satellite technology to record and apply data based on individual drivers' behaviour. On one level, such an approach might seem to be the opposite of risk assessments, which have traditionally been made purely by reference to gender (even though such assessments were supported by statistics). However, the use of data derived from telematics, and the types of data which telematics seek to record and analyse, need to be considered carefully.
For instance, telematics could make it possible to measure the hours of the day during which cars are driven, or certain geographical areas where they are driven. Again, it is possible to postulate terms of cover which would disallow, or penalise in price, certain attributes of driving, such as:
- acceleration (even if not allied to speed offences);
- driving late at night; or even
- driving to or from venues which are more likely to receive a preponderance of male visitors, such as football grounds.
In relation to any risk factors deployed in underwriting where gender has the potential to affect a risk rating, insurers need to have evidence that their selection of risk factors is objectively justifiable, and is not simply gender discrimination by another name. Failure to develop and maintain systems and controls to collate, store, analyse and deploy such evidence is likely to cause insurers to incur loss and expense - let alone brand or reputational damage - in combating gender discrimination claims.
As to age discrimination in insurance, the Advocate-General noted in her opinion in Test Achats that: "It is true that age is a characteristic which is also inseparably linked to an individual, but every human being passes through different categories of age in his life. If insurance premiums and benefits are therefore calculated differently according to age, that does not yet as such give rise to any fear that the insured person will be disadvantaged as an individual. Everyone may, on the basis of age, in the course of his life be in receipt of insurance products which are more or less favourable to him."
Despite this endorsement of what would otherwise be overtly discriminatory practices, insurers should be careful to consider whether there are certain functions or attributes of age which manifest themselves differently between genders, including, say, in relation to fertility, or illnesses which occur exclusively or predominantly in one gender or another.