Response ducks opportunity to clarify exactly what will constitute a ‘new contract’


Insurers have been left in limbo following the government’s failure to clarify what constitutes a ‘new contract’ under the European Court of Justice’s (ECJ’s) controversial gender ruling.

The ruling, which comes into force on 21 December, aims to prevent insurers setting premiums based on the sex of the policyholder. Women have typically been able to obtain cheaper car insurance because they are statistically safer drivers.

Under the ruling, pricing in new contracts starting after 21 December has to be gender neutral. But there is confusion about what constitutes a new contract. It is unclear, for example, whether someone amending a spelling mistake in a policy, which would trigger the issue of new policy documents, would be subject to a sudden premium increase or decrease, depending on their sex.

Insurers had hoped for clarity on the issue when the government published its response to the consultation on the ECJ ruling last week.

But the government response said: “Whilst we understand the desire for certainty on these issues, we must be clear that government cannot provide further clarity on the interpretation of the gender directive with any authority.”

Courts will need to decide if the definition of ‘new contract’ is fit for every country in the European Union, the response added.

It then said: “Any further guidance provided by government would not necessarily align with decisions the courts may make in future, and would therefore only serve to provide false certainty to industry.”

An Esure spokesman said the government response would cause uncertainty for the year after the ECJ directive takes hold.

“Every company will have to make its own decisions in accordance with the advice they receive,” he added, “but that guidance would have been so much better coming direct.”

Hogan Lovells partner Christian Wells said: “The conclusion in the response states that although further guidance on the ECJ judgment would be desirable, government does not think ‘this would be helpful or appropriate’ as the issues involved are ‘complex’.”

Wells added that the insurance industry would probably need to bear claims and legal action before getting the guidance it needed from the courts.

Talking points …

● The government has missed a chance to reassure the industry over what ‘new contract’ will mean. It has justified its decision by saying that the courts will have the ultimate decision, but with more work this could have been avoided.
● Although many insurers have estimated the cost of implementing the ruling, much will depend on how consumers react.

Pass notes: Gender ruling

Could a similar ruling be brought in to ban rating according to age?

The industry was understandably worried about this, particularly because the current wording of the equality act allowed the ECJ ruling to happen, so could allow an age ruling too. From 1 October, however, the government is set to introduce a statutory instrument that will block any age discrimination rulings from being made.

How much could the gender ruling cost the industry?
Insurers have estimated it will cost several millions of pounds, according to insurance replies to the Treasury consultation.

The estimates ranged from £200,000 to £1.1m. But this figure is likely to increase as a result of additional costs, such as compensating consumers for complaints, future litigation, holding additional capital and implementing a gender-neutral strategy.