Insurance Post

ECJ gender ruling should be taken on the chin

This week's final decision from the European Court of Justice to accept the preliminary opinion of its Advocate General, Juliane Kokott, on ending the opt-out insurance has from the relevant European non-discrimination directives is not a surprise. We knew last October that this was very likely to be the outcome and that probably accounts for why much of the reaction from the insurance industry seems more like resigned indignation rather than outright horror. Indeed, it has been coming for the best part of a quarter of a century since the old Equal Opportunities Commission took Friends Provident to court over the higher premiums charged to women for medical and income replacement insurance.

The decision is a mixed bag. It is easy to see why the strongest reaction has come from the life assurance and retirement planning sectors because there it does seem to defy logic but only if viewed from a narrow actuarial perspective. Women live longer: that is a simple, indisputable statement. So, why should financial products where longevity is a key risk factor not set different rates for men and for women? The ECJ has decided to frame the answer to this question in a political and social context, effectively nullifying the rather obvious actuarial answer.

The response to the debate therefore has to focus on the effect that inequalities in annuity rates have on the propensity of women to save for retirement. Fought on this ground the industry has very little chance of persuading the UK government to take a stand against the ECJ ruling as far too low a proportion of women save adequately - or at all - for their retirement and removing anything that can be viewed as an impediment to tackling this crucial problem is going to be welcomed by policymakers.

When it comes to general insurance, especially motor insurance, the industry is on even shakier ground.

There has been a longstanding and widespread suspicion that the use of gender as a major rating factor is a lazy proxy for many other things that the insurance industry could rate on if it really wanted to. Are women really that much "safer" as drivers merely because they are women? I doubt it and so to many other people, including the Belgium consumers' association that took the case to the ECJ. Their lower accident and claims rates have much to do with the amount of time they spend in a car and how far they drive. This takes us into the arena of pay-as-you-drive policies which you can, using modern telematics, easily implement, also rating by average speeds, type of roads driven on and the times of day the driver uses their car. These are altogether more sophisticated measures and will, after a period of adjustment, lead to a much more accurate pricing model.

This is not to understate the problems that the insurance industry and consumers will have in adjusting to the new regime. There is already a widespread suspicion among consumers that insurers will just use this as an excuse to put up premiums. The problem for insurers is that this judgement has arrived at a bad time. They are losing money on motor insurance and we are therefore moving into a hardening market: rates will be going up anyway. I think the insurance industry will just have to take this backlash on the chin.

What has surprised me is how little we have heard so far from the anti-European political lobby. I thought after the recent grandstanding over rejecting the European Court of Human Rights ruling on giving prisoners the right to vote, that the anti-European forces might see the ECJ ruling as an opportunity to pick another fight with a European institution. But, so far, there has been hardly a peep.

It seems that anti-European Labour and Tory MPs see more benefit to them in opposing rights for prisoners than they do in being seen to go into battle on behalf of the insurance and savings industry. That is a very sad commentary on the standing of insurance and financial services in the world of politics today.

That said, if any sort of political lobby driven by opponents of the broader European project should emerge I would urge caution on the industry before embracing it. The European Union makes most of the rules that affect the industry so to attempt to do battle with it on an issue where the industry case is not as solid as the knee-jerk reactions might make it appear would not be a wise move, especially if the only political allies you can find are really just using it as a convenient issue with which to attack the EU and pursue an agenda that is only heading into a dead-end. 
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