How long before we have sex free underwriting?

The European Court of Justice in Luxembourg ci...

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On the day when the Equality Act comes into force in the UK, the insurance industry finds itself digesting the implications of a forceful and unequivocal opinion from the European Court of Justice (pictured) that it must take sex out of underwriting. This came out yesterday afternoon and, potentially, affects every type of insurance as well as annuities.

This is not a new issue. It has been rumbling around the UK market for over 25 years since the case of Pindar v Friends Provident. Up until now, the industry has been able to fight off various poorly argued and thinly evidenced challenges to the charging of different premiums for men and for women across a range of classes of business. This time the battle looks very tough and the insurance industry should brace itself for defeat.

The Advocate General of the ECJ, Juliane Kokott, has delivered an opinion on the opt-out that insurance has from the relevant European non-discrimination directives following a case taken through the Belgium courts by Test-Achats, the Belgium consumer rights group. The full opinion is over 20 pages long (and can be downloaded below) but its conclusion is simple enough to summarise: the derogation from European directives to permit gender based underwriting cannot be justified.

She goes into alot of detail about why she rejects all the actuarial data that has previously persuaded courts and politicians to allow underwriting by gender, or sex as she constantly refers to it, even extending her arguments to cover life insurance and annuities, despite the main focus of the original Belgium case being general insurance.

It is, however, an Opinion and not yet a fully-fledged judgement and it hasn't been enacted in European Union law. The chances of stopping are not high, however. Over 80% of ECJ opinions are acted upon, an even greater percentage when they argue, as this one does, that the present legislative practice conflicts with the Treaty and the Charter of Fundamental Rights of the European Union. The industry will have to pitch its arguments carefully and may well have to be prepared to concede alot of ground. It is quite possible to foresee an outcome where life assurance and annuities retain some exemption just because the longevity statistics are so totally irrefutable but where motor, travel and other general insurance classes have to end all gender-based underwriting.

This will have a huge impact on premium rates for motor insurance, travel insurance and medical insurance in particular and to predict that there will be a consumer backlash doesn't take any sort of genius. The industry should be thinking of how to cope with that and, in particular, how to deflect the blame. There will be tens of thousands of very angry women when they face 20% plus increases in their motor insurance premiums and it will be no easy task explaining to them that it is all in the name of equality.

There will be much more written about this over the months to come but I leave you with one related thought: are we going to return to a system of much purer pooling of risk with fewer and fewer factors permitted to be taken into account when calculating premiums? If that seems far-fetched then have a look at what is going on in the USA where regulators are pressing insurers to stop using credit-worthiness as a risk factor. This, remember, is in a country that has seen its housing market collapse because lenders themselves decided to stop looking at creditworthiness when rushing into the sub-prime mortgage market.

C236_09 EN AGO (2).pdf

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