Gender in insurance pricing Biznet by alicejenny


									               Croatian Insurance Days 2011
                                 Rovinj, 14 November 2011

    The ECJ “Test-Achats” ruling

William Vidonja, Head of Single Market & Social Affairs, CEA
European insurance and reinsurance federation, founded
in 1953

Represents around 95% of European insurance market by
premium income

Committed to creation of favourable regulatory and
supervisory framework for insurers at European and
international level
34 national

   26 EU member

   6 non-EU markets
    Croatia, Switzerland,
    Iceland, Norway,
    Turkey, Liechtenstein

  2 associate
   Serbia, San Marino

   3 partners
   Russia, Ukraine,
  income of      almost
over €1 100bn   €7 500bn
International institutions                        European institutions

 G-20 IASB     IAIS                                Council of Ministers
         IMF    FSB                                  Parliament
 OECD                                                    European


                             National insurance

                                   Insurance        Other stakeholders
 industry                          companies
 stakeholders                                     Business Europe BEUC
  RAB          PEIF
   CFO          CRO                               EFAMA EWL      UNI-
   Forum        Forum                                            Europa
                                                    Age Platform Europe
     AMICE        ICIS
             The ECJ “Test-Achats” ruling - agenda

Insurance pricing
Gender in insurance pricing
  Is gender a legitimate factor in insurance
  Are there other legitimate alternative
  Gender Directive 2004/113/EC
  The ECJ Test-Achats ruling
  Its implications for insurers and
  consumers, in theory and in practice

Age and disability in insurance pricing

Private insurance differs from social security
  Voluntary vs compulsory
  Mutualisation vs solidarity
  Funded method vs PAYG
  Market freedom, entrepreneurship & competitiveness

Private insurance is based on the principle of fair risk
pricing, considering relevant factors

Differentiation according to risk exposure is a precondition
to the functioning of private insurance

Is gender a legitimate factor in insurance pricing?
  No, where not relevant (home)
  Yes, where relevant, ie correlated with risks (eg motor, life, accident,
     Gap in life expectancy in the EU: 6,5 years
     Some diseases are sex-specific (gender medicine)

Are there reasonable alternative factors?
  Motor: years with driving license, mileage, claims background,
  engine size, etc.
  Life / health: lifestyle (alcohol, smoking, nutrition, sport habits),
  income, place of residence, occupation, etc.
     Not obvious, not easily verifiable, not stable, intrusive
     All things being equal, gender remains a relevant risk factor
Gender Directive 2004/113/EC
  Prohibition of gender-based differentiation in insurance pricing
  MS option allowing such differentiation (Art.5§2)
                                       Article 5 - Actuarial factors
    1. Member States shall ensure that in all new contracts concluded after 21 December 2007
       at the latest, the use of sex as a factor in the calculation of premiums and benefits for the
       purposes of insurance and related financial services shall not result in differences in
       individuals' premiums and benefits.
    2. Notwithstanding paragraph 1, Member States may decide before 21 December 2007 to
       permit proportionate differences in individuals' premiums and benefits where the use of
       sex is a determining factor in the assessment of risk based on relevant and accurate
       actuarial and statistical data. The Member States concerned shall inform the
       Commission and ensure that accurate data relevant to the use of sex as a determining
       actuarial factor are compiled, published and regularly updated. These Member States
       shall review their decision five years after 21 December 2007, taking into account the
       Commission report referred to in Article 16, and shall forward the results of this review to
       the Commission.

  Implementation by 21 December 2007 (27 MS opted out for life)
ECJ Test-Achats ruling, 1 March 2011
  Art.5§2 invalid with effect from 21 Dec 2012
  The ruling addresses the structure of the Gender Directive, but
  leads to challenge the way private insurance works

       Judgement in Case C-236/09 - Association belge des
       Consommateurs Test-Achats ASBL and Others v Conseil des
       “On those grounds, the Court (Grand Chamber) hereby rules:
       Article 5(2) of Council Directive 2004/113/EC of 13 December
       2004 implementing the principle of equal treatment between
       men and women in the access to and supply of goods and
       services is invalid with effect from 21 December 2012. “
Implications for insurers
  Technical challenge for insurers to adapt (deadline)
  Legal certainty needed asap
      EC guidelines expected in Dec 2011
      Ruling only applies to new contracts concluded for the 1st time after 21 Dec
       -   ECJ’s intention and Gender Directive’s aim to prevent sudden readjustment of
           the market
       -   Parties’ rights and obligations fixed and exhausted at the time the contract is
       -   Insurers have relied/rely in good faith on Article 5(2)
       -   Consumers and businesses need a secure legal environment when committing
General implications for consumers
  Reduced competition, innovation and consumer choice
  Risk inadequate pricing: risk of premium increase, withdrawal of
  products (adverse selection and moral hazard)
General examples of consequences for consumers
  Term life insurance
        – Women live longer than men & pay less
        – Expected premium increase eg for a single young mother looking for a
          term life insurance to secure her mortgage
  Motor insurance
        – (Young) women have less driving offences and claims, and therefore
          pay lower premiums
        – Unisex premiums may result in higher premiums for them
        – Men may stop buying annuities and prefer banking/investment products
          with no biometric risk coverage
        – Expected social impact on levels of retirement savings in the context of
          financial pressure on state pension schemes
National examples
     Motor third party liability (MTPL) insurance: the introduction of unisex
     rates resulted in 2008 in premium reductions of 3–4% for young men and
     premium increases of 7–15% for young women
  The UK
     Motor insurance: women aged 25 and under could see the cost of cover
     rise by up to 25%; men of same age costs could fall by up to 10% (based on
     an average motor premium of £1,682 for female aged 17-22 (AA Premium
     Index), it would mean an extra £420 a year)
     Annuities: men (and dependants) could see a 8% reduction in benefits,
     while those for women could only rise by 6%
     Term life insurance: expected rise of up to 35-50% in the cost of cover for
     women, while men could see a fall of 0-10%
Draft Directive on age & disability
   Risk of spill-over effect

   Similar structure as Gender Directive
     Article 2(7) :
     Notwithstanding paragraph 2, in the provision of financial services, [Member States may
     provide that] proportionate differences in treatment on the grounds of age or disability shall
     not be considered discrimination for the purposes of this Directive, if age or the health
     condition underlying the disability is a determining factor in the assessment of risk for the
     service in question and this assessment is based on actuarial principles and relevant and
     reliable statistical data, or, [where no such data is available] for a certain health condition,
     on relevant and reliable medical knowledge.
     Providers of financial services who decide to apply proportionate differences of treatment
     on the grounds of age or disability shall provide information on the reasons justifying those
     differences of treatment.“
Draft Directive on age & disability
   Legitimate, relevant factors
      Motor: claims frequency/ costs vary according to age groups
      Health: medical expenses grow with age
      Travel incl health cover: medical treatment costs grow with age
      Life: mortality grows with age

   A ban on the use of these factors would lead to the end of the
   current insurance business model, to the detriment of
   Need for absolute legal certainty on use of age and disability in risk
   assessment and insurance pricing
Differentiation according to risk exposure is not unfair discrimination,
but is a precondition for the functioning of private insurance
ECJ Test-Achats judgment raises key challenges:
   Will the industry manage to adapt in time?
   Which benefits for consumers, including for women? Economic and social
   Current private insurance business model at stake?
Age and disability are relevant factors in insurance pricing
   Need for absolute legal certainty
 CEA Annual Report      Briefing note: Insurance   Financial education and
                               distribution         awareness: European
                                                      insurance industry

                                                      The use of gender in
European Insurance in    Insurance Distribution        insurance pricing
      Figures              Channels in Europe
For more information

            CEA aisbl
            Square de Meeûs 29
            B-1000 Brussels

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