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Life Health > Life Insurance

Revolution in Risk: Are Unisex Mortality Tables Coming to America?

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“Men Are From Mars, Women Are From Venus,” goes the popular self-help book. But in a recent ruling, the European Court of Justice said that, although statistically verifiable, you’d better not acknowledge that mile-wide (sorry, kilometer) gap between men and women when you’re pricing life insurance premiums.

The highest court in the EU ruled earlier this year that the long-standing practice of basing insurance premiums on gender is sex discrimination that is prohibited under EU law. Despite hundreds of years of data verifying the simple fact that women live longer than men, insurance carriers in the EU will soon be prohibited from considering gender when setting insurance premiums.

Under EU law, “[e]quality between women and men must be ensured in all areas, including employment, work and pay.” The European policy generally has been applied to remove gender discrimination in the workplace. But a 2004 European Directive “prohibits all discrimination based on sex in the access to and supply of goods and services.” And that directive has been specifically applied to access to life insurance.

A 2007 EU directive said that insurance companies can’t factor gender into their premiums; but the directive permitted EU member states to indefinitely stay implementation of the law. The Court’s latest ruling ends that stay. Carriers must start using gender-neutral mortality tables by December 21, 2012.

The Effect on European insurance customers

The ruling generally means that women will pay more for insurance; both life and car insurance costs more for males than for females. But the ruling will also adversely affect older men who purchase annuities at retirement, since carrier estimates of their life expectancy will include data for women—who generally live longer than men.

The Association of British Insurers estimates that women’s premiums will increase by 20% and men’s premiums will fall by 10% as a result of the high court’s ruling. The association also estimates that men will see their annuities generating 8% less income than before. Annuities on women’s lives will pay out more than under the gender-based mortality tables.

Due to the expected impact on women’s insurance premiums, the rule has been characterized by some as forcing women to subsidize the extra risk presented by men. But on the other hand, should men with particularly safe habits be forced to subsidize the bad actors who also happen to be male?

The court considered whether rising premiums for a large segment of the population (i.e., women) was a sufficient reason to allow the sex discrimination inherent in the mortality tables. The court said no, “none of the parties to the proceedings has submitted that the introduction of so-called unisex rates would give rise to a serious danger to the financial equilibrium of private insurance systems.”

The Justification for Such a Dramatic Change

The court refers to sex as a “substitute criterion”—in other words, sex is a proxy for life expectancy. According to the court, verification of sex is inexpensive and easy; whereas examination of other factors that may be equivalent is much more difficult. As a result, carriers who use sex to price insurance are taking the easy way out and discriminating on the basis of sex.

Some factors affecting risk, like medical and driving histories, are obvious, but what is it that gives women a few more years on this planet than men and makes them less prone to driving 100 miles per hour on country roads? Testosterone levels could be used as an indicator of 


life expectancy. Butaccording to a Psychology Today article last year that synthesized recent research into human life expectancy, “risky lifestyle accounts for most of the human gender difference in life expectancy” and that “any fixed biological differences (e.g., metabolic rate, Y-chromosomes, exposure to testosterone versus estrogens) make only minor differences.”

In other words, the European court may be right; gender is only a (poor) proxy for life expectancy. Men who engage in risky behavior bring down the life expectancy of men as a whole.

But how will European insurance carriers account for the increased risk presented by this subset of men? Carriers could intensify physical examinations and lengthen applicant questionnaires to ferret out valuable information indicating a person’s expected life span. Then individuals who present the greatest risk would bear most of the cost of their lifestyles.

Or carriers could avoid the expense of administering a more detailed application process and simply use their unisex mortality tables to spread the cost of the risk presented by a small subset of men out to all other men and women. This is the likely scenario that will play out over the next year and a half.

U.S. regulators have yet to follow the lead of their European counterparts.

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See also The Law Professor's blog at AdvisorFYI.


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