Confirmation in the Queen’s Speech that the government will be going ahead with Harriet Harman’s brainchild, the Equality Bill, ensures this will be an interesting session for the insurance and financial services sectors.
Ms Harman has made it clear that the new Equality Bill will include provisions to end age discrimination in financial services unless “actuarially justifiable”. This should send shivers down underwriting and actuarial spines. The last time legislation went down this route – with gender discrimination laws in the early 1980s – the industry found itself literally in the dock as the Equal Opportunities Commission took insurers to court to get them to prove that they had the actuarial data to justify the higher rates women are asked to pay for health insurance and what we now call income protection products. It looks as if we are set for a replay of the arguments played out then.
Just as it was then, the onus will again be on the industry and its actuaries to justify what the government sees as the downside of age-related underwriting decisions: the upside will be fine. For instance, nobody challenged the right of the industry to charge women drivers less for their motor insurance but they queried every penny extra women were asked to pay on the premiums for other classes of cover. This time around, the Equalities Office has made it clear that it is all in favour of premiums that discriminate in favour of older people: “We want to make sure we only outlaw unjustified discrimination without unintentionally stopping things that are beneficial to particular age groups”, it says.
This all raises a lot of questions, such as what data can be used? Will companies be allowed to rely on their own data or will they have to refer to industry-wide data, in which case what happens to competition?
I have already heard grumbles from insurers who want to use good quality social and economic data to help them underwrite, not just a very narrow selection of actuarial data. Others are concerned that the depth of data simply won’t exist as the aging population is a new phenomenon: do we really know enough about the risk profile of an 80 year old who commutes to work everyday – a rare beast now but likely to be much more common in the future? Old assumptions will be challenged and altered. These are points that both the Association of British Insurers and the Institute of Actuaries have made in submissions during the consulattion on the drafting of the Bill.
All that said, the insurance industry has brought some of this on itself through its sheer lack of imagination. Making it almost impossible for many over 75s to get affordable travel insurance is not a clever move. The industry should be looking at much more flexible lifestyle packages that wrap up a wider range of covers in a single policy. It does need to take the sting out of this debate by looking hard at is current conventional wisdom.
It does seem as if the government is setting out its stall for a long run at this issue, however. It is promising lots of consultation and the ABI boss Stephen Haddrill is on a special “Senior Stakeholders Group” advising on the bill.
Another financial services cage the Bill will rattle is labelled equal pay, or rather lack of equal pay. In the consultation paper, the Equalities Office highlights the financial sector as having a dreadful record of gender discrimination (along with the more predictable bad boys of construction). It says the financial service industry employs over one million people, with the pay gap between men and women now 41.5%, compared to a national average figure of 12.6%. It wants to know why and is proposing to give itself some tough new powers in the Equality Bill to find that out and fix it.
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