The end of the road for cheaper car insurance for women?


A Belgian court case that has been referred to the European Court of Justice questions the validity of using gender as a risk factor in insurance. Lesley Ainsworth and Paul Castlo review the impact the decisions in this case could have for all European insurers.

Is it compatible with the fundamental rights of the European Union to take the sex of the insured person into account as a risk factor in the formulation of private insurance contracts?

According to the advocate general of the European Court of Justice, Juliane Kokott, this is the question that must be determined in the important case of Association Belge des Consommateurs Test-Achats ASBL and Others.

On 30 September, the advocate general delivered her opinion to the ECJ; concluding that taking the sex of the insured person into account as a risk factor in the formulation of insurance contracts is incompatible with the general principle of equal treatment. If the ECJ follows this opinion, it will have major ramifications for insurers in the EU.

Directive interplay
The case centres on the interplay between Article 5(2) of Council Directive 2004/113/EC implementing the principle of equal treatment between men and women in the access to and supply of goods and services, which allows a member state to permit differences related to sex in respect of insurance premiums and benefits if sex is a determining risk factor that can be substantiated by relevant and accurate actuarial and statistical data; and the prohibition of discrimination on grounds of sex, which is enshrined as a fundamental right under EU law.

This case stems from an action before the Belgian Constitutional Court brought by a Belgian consumer organisation and two individuals arguing that the Belgian law that implements Directive 2004/113 (and which made use of an Article 5(2) derogation for life assurance contracts only) was incompatible with the principle of equal treatment for men and women, and should be annulled.

Incompatible issue
The Belgian Constitutional Court referred two questions to the ECJ; namely whether Article 5(2) of Directive 2004/113 is compatible with the principle of equality and non-discrimination under EU law, and if it is not whether that Article is also incompatible if its application is restricted to life assurance contracts.

Although triggered by an action before a Belgian court about a Belgian law, the ECJ's judgment could have ramifications far beyond the borders of Belgium. The Belgian, Finnish, French, Irish, Lithuanian and UK governments all submitted observations to the ECJ.

Sweeping assumptions
In her opinion to the ECJ, the advocate general stated that insurers make sweeping assumptions that the different life expectancies of men and women, the difference in their propensity to take risks when driving, and the difference in their inclination to utilise medical services - which merely come to light statistically - are essentially due to their sex. When, in fact, many other factors play an important role in the evaluation of the insurance risks.

For example, life expectancy is strongly influenced by economic and social conditions as well as by the habits of each individual, for example, the individual's profession, family and social environment, eating habits, and sporting activities. She concluded that the use of a person's sex as a substitute criterion for other distinguishing features is incompatible with the principle of equal treatment for men and women. This approach means that different insurance premiums and benefits for men and women are not based exclusively on objective criteria, which have nothing to do with discrimination on grounds of sex.

The advocate general proposed that the ECJ should declare Article 5(2) of Directive 2004/113 to be invalid since it infringes the prohibition of discrimination on grounds of sex, which is a fundamental right under EU law. However, because millions of insurance contracts based on sex-specific risk assessments have been concluded since the entry into force of Directive 2004/113, she recommended that for reasons of legal certainty, the declaration of invalidity should not have retroactive effect. She also recommended that member states should be granted an appropriate period in which to review their domestic laws, and that insurers should have a three-year transitional period in which to adjust to the new legal framework and adapt their products accordingly.

Wide consternation
The advocate general's opinion has been met with consternation from insurers. Many consider that the opinion is simply incorrect; the rating of men and women for the purposes of insurance that is based on hard evidence, for example, life expectancy and safer driving, is not ‘based on sex' even if it is based on what may be a result of that sex.

If the ECJ follows the advocate general's opinion, those member states that have to date made use of the derogation contained in Article 5(2) of Directive 2004/113, which include Belgium, France, Germany, Ireland, Italy, the Netherlands, Spain and the UK, will have to amend their laws so that all future insurance premiums, and the benefits financed out of them, must be neutral in terms of sex.

Far-reaching implications
Insurers operating in those member states will, therefore, have to change the way they write business. The CEA, the European insurance and reinsurance federation, has warned that there could be far-reaching implications for the price and availability of insurance cover; that premiums will increase, coverage will decrease and some products will be withdrawn from the market entirely.

However, the advocate general met this criticism head on by making it abundantly clear that purely financial considerations, such as the danger of an increase in premiums for a proportion or even for all of the insured persons, do not constitute a material reason that would make discrimination on grounds of sex permissible.

So, what happens next? The ECJ's judgment is not expected until 2011. Although the advocate general's opinion is not binding on the ECJ, it is likely to have strong persuasive effect. It is, therefore, probable that the ECJ will follow the advocate general's opinion and insurers across Europe will have to deal with the consequence.

Lesley Ainsworth is a partner and Paul Castlo is an associate in Hogan Lovells' antitrust, competition and economic regulation practice



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