2011-08-01
By staff reporter
The European Court of Justice (ECJ) has upheld the Opinion of the Advocate General that the exemption of certain insurance contracts from the current European Directive on anti-discrimination is illegal under the principles of Article 6 of the Treaty on European Union.
However there will be some leeway in the implementation of this ruling as the ECJ has given insurers until 21 December 2012 to implement the ruling.
Commenting on the ruling, Simon Sheaf, Grant Thornton’s general insurance actuarial practice Leader says: "UK insurers will have to change their pricing processes to ignore gender and consider how they handle quotations made in the run up to December 2012. There is also the potential for anti-selection for any insurers acting ahead of December 2012 and for all insurers over the change-over timing that will need to be addressed. This issue applies to a number of general insurance products, such as motor and personal accident, as well as to life and health products meaning that both the life and general insurance industries have major exercises to undertake.
"The Opinion required what is termed as a ‘preliminary ruling’ and is still open to challenge. However, Sheaf added “The challenge to insurers will now be to find any underlying risk identifiers that sit behind gender differences and to move towards using these as rating factors by December 2012. Ironically, the new Solvency II capital regime creates higher capital requirements where risk factors have been ignored.”
Nigel Cooke, Grant Thornton’s senior life actuary says there is a greater concern. “As a consequence of the judgement, all differential pricing that has occurred since the Directive was implemented in 2004 may yet be challenged as a fundamental infringement of rights enshrined in the European Union Treaty, despite the fact that the Directive permitted the differential and will continue to do so until late 2012. Whether this would be the fault of insurers, the regulators or the EU itself would then have to be considered.” he said.
Cooke went on to add “Both the Treaty and the Directive cover other areas of discrimination, some explicitly. These are notably age, race and disability. It can be similarly argued that insurers currently use these as a ‘proxy’ for other underlying risks that merely tend to be associated with a factor that individuals have no control over. Hence while the decision itself will attract much attention and have a significant market impact, the consequential events may yet be even more severe.”
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