Advocate-general deems gender-related insurance pricing in violation of discrimination law
On 30 September, EU advocate-general Juliane Kokott announced that taking the gender of a person into consideration for insurance purposes is a breach of EU discrimination policies.
Although Kokott’s opinion is not automatically binding on the European Court of Justice, advocate-general opinions are followed in around 80% of ECJ cases.
Understandably, industry figures are concerned that Kokott’s opinion shows a significant misunderstanding of how risk is calculated by insurers for premiums.
“The feeling that discrimination is in place when men and women are charged different rates for premiums is a fundamental misunderstanding of how car insurance works,” a Sheilas' Wheels and Esure spokesman says.
National commercial law firm Beachcroft's financial services partner, Mathew Rutter, agrees. "This opinion is simply wrong," he says. "It's so obviously wrong, it's hard to know what else to say. A single advocate-general has decided that she knows better than the entire insurance industry how to price risk. It's completely bonkers.”
Hit where it hurts
The Sheilas' Wheels spokesman says that the financial implications to insurers of such a rule change is impossible to quantify at this point. But he adds that the potential cost could be even greater if other forms of perceived discrimination are redressed by the ECJ.
“The selection of risk is at the core of underwriting. If we introduce equality of sex or age, then what else are we going to introduce equality to? It will mean insurers and reinsurers going back to the drawing board. It would cause havoc in the UK general and life insurance market.”
Rutter points out: "The insurance industry is not asking to be allowed to discriminate on the basis of gender, age, race, or any other factor. It is simply asking to be allowed to reflect the reality of life in how it prices risk.
"The most likely consequence of this ill-considered opinion, if it is upheld, is that people who pose a high risk will find it almost impossible to get insurance. In what way is that a socially desirable outcome?"
Latest figures from AA Insurance show that male drivers under 21 are 10 times more likely to have an accident than drivers over 35 years old, while female drivers under 21 are only five times as likely to have an accident.
The more troubling figure for insurers is that average claim values for male drivers under 21 are three times greater than claims for females in the same age bracket.
“If I was an underwriter, I’d probably just stop offering insurance to the under-30s to avoid writing young male drivers at loss-making rates," AA Insurance director Simon Douglas says. "While everyone needs to buy motor insurance, insurers aren’t obliged to offer rates to everyone.”
The wider impact
The reality of the threat coming to regulatory fruition hangs in the balance, but if it does, all drivers face higher premiums.
Douglas believes that such a move could restrict product offering. “Further, we could see products designed that are less attractive to men but appeal to women,” he predicts.
Pinsent Masons insurance partner Bruno Geiringer, says: “The impact of this opinion, if it is adopted, would be far-reaching, with some premiums inevitably having to increase and coverage decrease. It may lead to some products being withdrawn. None of this will serve the consumer well.”
So is there any good news at all for insurers if the advocate-general's opinion is made law?
Douglas suggests: “One positive to come from this would be at the opposite end of the age scale, where over-55 female drivers tend to pay more than males.”
Insurers generally remain unconvinced, however. Summarising the prevailing mood, the Sheilas' Wheels spokesman says: “This is something that shows the law of unintended consequences. If the EU believes that bringing this in would increase equality, they are looking at it the wrong way. It would breed inequality."