EU bans gender-based insurance pricing

The European Union's highest court on Tuesday barred the insurance industry from charging different rates for men and women, saying the widespread practice amounts to sex discrimination against millions.

The ruling ordered changes effective Dec. 21, 2012, to auto insurance, life insurance, medical coverage and other plans, potentially affecting tens of millions of customers across the continent. For example, many women drivers would see their car insurance costs rise even though they are considered safer on the road.

'It's not fair that women pay less.' —Roman Driver Antonello Parenti

EU Justice Commissioner Viviane Reding said it was "now clear that an insurance company must not distinguish between women and men; all customers must be treated equally."

"This is a matter of respect for fundamental rights. It is now also becoming a matter of good business practices," Reding said.

Insurers grudgingly accepted the ruling, but say their current policies are statistically fair and the change will be bad for customers because it will force cost hikes across the board.

"The judgment ignores the fact that taking a person's gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance," said Maggie Craig, the acting director general of the Association of British Insurers.

The EU had already imposed an equal treatment system in 2007 but left the possibility for some unlimited transitional period. Tuesday's ruling closes that loophole.

Currently, millions of insurance policies take gender into account, with insurance companies arguing it is typically easy to check and is statistically sound. The court said that is inappropriate, since there are myriad other factors that could also be considered.

"Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination," the court said in a statement.

The Belgian consumer group Test-Achats, which brought the case, said the decision is a "historic ruling."

"The equal treatment of men and women must be absolute," the group said in a statement.

Canadian precedent

In 1983, Canadian motorist Michael Bates claimed it violated the Ontario Human Rights Code for his insurer, Zurich Insurance, to charge different prices for men and women. The case made it all the way to the Supreme Court, which rejected the claim in a landmark 1992 ruling.

Even if women are considered safer drivers, the question remains whether a man should be punished by paying more despite taking special care to drive safely. Test-Achats says there are other ways insurance companies can make a distinction, for example, by taking the accident history of a driver more into account.

In traffic-choked Rome, Antonello Parenti welcomed the ruling.

"Men and women are equal, so it has to be a matter of equal opportunities, so it's not fair that women pay less," he said.

Test-Achats also questioned why a woman who smokes and lives more dangerously should be assessed for medical or life insurance by the standards of an average woman while a man who works out, eats healthily and does not smoke cannot see his lifestyle taken into account.

"You have to complement the statistical approach but one which is more respectful of the rights of each individual taking lifestyle into account," the group said.

Effect unknown

It was not immediately clear exactly how insurance prices would be affected, but the British think tank Open Europe said British insurance providers alone will need an extra $1.52 billion US under the new circumstances.

It said that on average a 17-year-old female in Britain would have to pay $7,000 US more in car insurance over 10 years while a male would save $5,300 US over the same period.

The ABI said that under the new rules men approaching retirement could see an eight per cent reduction in annuity rates while rates for women approaching retirement could rise by six per cent.

When it comes to life insurance women could see a rise of as much as 20 per cent in the cost of cover, while men could see a fall of 10 per cent.

Reding said that when it comes to life insurance and annuities, all 27 member states use gender to assess risk.

Philip Jarvis, head of insurance at the international law firm Allen & Overy, said it was tough to put financial figures on the change, but that it was clearly a major ruling.

"It is nontrivial, it is a significant change to the industry," he said in an interview.

He expects overall charges to rise. Since the gender analysis is out, insurers have to spend more money figuring out pricing. Insurers could push up charges across the board to protect themselves or fine tune other, more expensive ways to differentiate between people, he said.

"The chances of this change leading to lower premiums for more people is relatively low," he said.

The British Conservatives called the ruling outrageous.

"It is a statistical reality that young men have more accidents than women so it should be reflected in their premiums," said European Parliament member Sajjad Karim.

Kevin Clinton, head of road safety at the Royal Society for the Prevention of Accidents, saw a possible positive consequence of the ruling. "If insurance premiums for young male drivers fall, this might encourage those who currently drive uninsured to take out insurance, which would be a good thing," Clinton said.

"On the flip side, some young female drivers might be discouraged from insuring their vehicles if the cost of their premiums rises significantly."