EU high court bans actuarial factors related to sex in calculating insurance premiums; market to adapt by December 2012

The European Union’s highest court has outlawed any discrimination between men and women as actuarial factors when calculating premiums for life and property and casualty insurance policies.
“The use of actuarial factors related to sex is widespread in the provision of insurance and other related financial services,” the EU Grand Chamber wrote in its judgment in Yann van Vugt and Charles Basselier v. Conseil des ministres, posted on Mar. 1, 2011. “In order to ensure equal treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits.
“To avoid a sudden readjustment of the market, the implementation of this rule should apply only to new contracts concluded after the date of transposition of this directive.”
That would basically give European insurers up until December 2012 to make the transition.
“Articles 21 and 23 [of the EU] Charter state, respectively, that any discrimination based on sex is prohibited and that equality between men and women must be ensured in all areas,” the court found, noting that Article 5(2) of EU Directive 2004/113 provides for equal treatment between men and women in the access to and supply of goods and services. “Consequently, it was permissible for the EU legislature to implement the principle of equality for men and women – more specifically, the application of the rule of unisex premiums and benefits – gradually, with appropriate transitional periods.”
The court’s decision will create some uncertainty in the market during the transitional period, says Noleen John, a legal consultant for international legal practice Norton Rose LLP.
“Insurers will from December 2012 need to apply unisex rates,” said John. “This transitional period is less than that recommended by the Advocate General and means that insurers will need to review their policies and practices as soon as possible.
“It also seems likely, in view of the length of the transitional period, that insurers may need to use uncertainty premiums until they have sufficient data in relation to the carrying on of business on this new basis. This could result in higher premiums or lower benefits for certain policyholders (female motorists and male annuitants).”
The decision also may create some uncertainty about the future of other established actuarial factors used to establish insurance premiums.
“There is going to be uncertainty in the insurance market for some time as a result of this decision,” says Ashley Prebble, insurance partner at Norton Rose LLP. “It is likely that the decision will require the European Commission to clarify the position with regards to other potential areas of discrimination, particularly age and disability.
“This might be done through a protocol setting out exactly what insurers will be able to do in terms of differentiating the risks posed by different categories of policyholders.”