“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.