Actuarial logic has taken a
backseat to political correctness in the European Union (EU).
Gender equality must be upheld at all costs, the European Court of
Justice ruled in March 2011 when, despite stiff opposition from the
insurance industry, it ruled that in the EU when assessing and
pricing insurance risk the use of gender was in conflict with the
European Charter.

The court’s ruling banning the use
of gender by insurers comes into force on 21 December 2012 and is
binding on all EU member states.

The court’s decision ended a
process that began in 2004 when the European Commission published
the Gender Directive which provides for equal treatment of men and
women in the supply of goods and services.

The directive, however, has a
clause which allows individual EU states to opt out of applying the
directive in the case of insurance premiums. All EU states have
chosen to use the opt clause for life insurance and pension
annuities. Most states have chosen to use the opt out clause for
general insurance.

The opt out clause was challenged
by the Association Belge des Consommateurs Test-Achats, a Belgian
consumer group, which took its case successfully to the European
Court of Justice.

The European insurance industry
believes that the impact of the court’s ruling will be unintended
but extensive and, in general, negative for consumers.

Commenting, Michaela Koller,
director general of European insurance and reinsurance industry
body Comité Européen des Assurances, says: “The use of
evidence-based statistics is indispensable in actuarial science,
and the study proves that gender is one of the factors that has an
obvious impact on the risks to be covered in such products as
annuities, term-life and motor insurance.”

To put this view to the test,
Germany’s insurance industry association Der Verband ist ein
Zusammenschluß der wichtigsten Versicherern commissioned Oxera, an
independent consultancy, to conduct a study into the impact of the

The broad findings of Oxera’s study
are that, on average:

  • women (aged 40) could see
    term-life insurance premiums rise by around 30% or
  • men (aged 65) could see a
    reduction in pension income from annuities of around 5% or more.
    This is, effectively, a rise in premiums; and
  • young women (aged 20) could
    see motor insurance premiums rise by 11% or more.

EU-wide Oxera estimates of the
impact of gender-neutral pricing are similar to its findings in a
study which it undertook earlier for the Association of British
Insurers. Specifically, Oxera concluded that, on average, in the

  • for annuities, men
    approaching retirement could see an 8% reduction in annuity rates
    while annuity rates for women approaching retirement could rise by
  • for life insurance, women
    could see a rise of as much as 20% in the cost of cover, while men
    could see a fall of 10%; and
  • for motor insurance women
    under the age of 25 could see their premiums rise by an average of

In other EU countries, Oxera
estimates that gender-equal pricing will have an even more
significant impact.

In the life insurance sector, women
in Spain and Poland will see life insurance premiums rise, on
average, by about 40% while men in those countries will, on
average, see a 13% decline in premiums. The most extreme impact of
gender-equal pricing will be in the Czech Republic where Oxera
estimates that women will, on average, pay about 60% more for life
insurance and men about 17% less on average.

Oxera also emphasised that
gender-equal pricing could encourage adverse selection. This occurs
if a uniform premium deters the low-risk group from buying
insurance, while attracting more of the high-risk group.

The European Court of Justice’s
ruling on gender equality in the insurance market may not be the
end. More sweeping change is looming in the form of the proposed EU
Anti-Discrimination Directive on age and disability.

The direction in which political
thinking is currently moving indicates a ban on the use of age or
disability by insurers as a pricing determinant.

“A ban on the use of age or
disability would undermine the insurance business model as it
currently exists, to the detriment of consumers,” says Koller.

“Such a ban would have a massive impact on the affordability and
availability of insurance.”