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Men and women will pay the same for insurance from 2012

Insurance and pensions companies must be stopped from offering different prices and premiums to men and women from December 2012, the European Court of Justice (ECJ) has ruled.01 Mar 2011

Insurance and pensions products are often made available at different prices to men and women because of their different risks. Men tend to pay more for car insurance because they are generally more dangerous drivers while women are typically charged more for health insurance because they tend to live longer, for example.

The ECJ has now ruled that this breaks the EU's laws on gender equality and must stop by 21 December 2012, the date five years after the EU's Gender Directive came into force.

Though the ruling will have a major impact on the insurance industry, companies will at least have more than 18 months in which to prepare, said Katie Tucker, an insurance law expert at Pinsent Masons, the law firm behind OUT-LAW.COM.

"The inclusion of a transitional period under the judgment will provide a huge relief for insurers," she said. "This is good news for the insurance industry who will have a decent amount of time in which to bring their systems and processes into line. The transitional period reflects the Court’s appreciation of the huge change its ruling will mean for the way in which the insurance industry prices and provides benefits under insurance."

"A real concern is the remaining uncertainty relating to the impact of the judgment on premiums and benefits for policies written prior to 21 December 2012," said Tucker. "It will therefore be important for the Financial Services Authority to be fully engaged with the issues and to provide clear guidance so that insurers can get comfortable that they are achieving the EU’s goals in a way that is compliant from an FSA perspective and treats customer fairly."

Nicola Bumpus, a pensions law expert at Pinsent Masons, said that the ruling means that insurance companies will have to change the way they calculate annuity prices, which are the amounts of retirement income an individual will get for their retirement savings.

"The decision has significant implications for pension schemes," she said. "Where any pension scheme benefits are bought from an insurance company, which principally means retirement income from defined contribution and personal pension plans, prices will change from the end of next year. It may be that in practice everyone is worse off as women will get little extra pension for their savings and men will see a drop in their pension income as a result."

The ECJ ruling said that the Gender Directive said that different premiums for men and women should have been outlawed in 2007 when it came into force. There was an exemption from that rule, though, which allowed different premiums where "the use of sex is a determining factor in the assessment of risks based on relevant and accurate actuarial and statistical data," according to the ECJ's ruling.

The Court said, though, that this led effectively to indefinite permission for insurers to change the prices for their services based on customers' sex, which is not what the law intended.

"Any decision to make use of [the exemption] is to be reviewed five years after 21 December 2007, account being taken of a Commission report," said the ruling. "However, given that [the Directive] is silent as to the length of time during which those differences may continue to be applied, Member States which have made use of the option are permitted to allow insurers to apply the unequal treatment without any temporal limitation."

The Court said that an exemption which allows insurers to discriminate on the grounds of sex forever is not consistent with EU rules on gender discrimination, and that the Directive was clearly aimed at eliminating different premiums for people of different sexes.

"There is a risk that EU law may permit the derogation from the equal treatment of men and women, provided for in [the exemption to the Directive], to persist indefinitely," said the ruling. "Such a provision, which enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits, works against the achievement of the objective of equal treatment between men and women, which is the purpose of Directive."

While the ruling acknowledged that a transition period was desirable, it said that it had to have an end date. It said that the exemption clause in the Directive "is invalid with effect from 21 December 2012".

The ECJ's ruling came in a case brought by two people in Belgium and consumer association the Association Belge des Consommateurs Test-Achats. They complained to the Belgian Constitutional Court about the exemption to the Gender Directive.

In an ECJ preliminary opinion on the case published in September of last year, Advocate General Juliane Kokott, said that the ECJ should eliminate the right to charge different prices based on the sex of the insured person.