The European Court of Justice handed down its much anticipated ruling in the Test Achats case on 1   March 2011. The Court ruled that from 21 December 2012 insurance premiums and benefits will apply to general and life insurance. 

The 2004 Gender Directive (2004/113/EC) imposed a requirement for unisex insurance premiums and benefits from 21 December 2007. As insurers throughout the EU relied on gender as a determining factor in calculating premiums and benefits, however,  the Directive provided for a derogation.  The derogation allowed insurers to continue to rely on gender as a determing factor provided that any such differences in premiums and benefits were justified on actuarial and statistical data.  The Directive did not set a limitation period for the derogation but instead allowed each Member State to review the position on 21 December 2012.  The Belgian Constitutional Court asked the ECJ to rule on whether the derogation was inconsistent  with the fundamental principle of gender equality.

The ECJ found that the derogation was invalid as it gave rise to a possibility that gender inequality may continue indefinitely.  The ECJ set 21 December 2012 as the end date for the derogation.  

What Does that Mean for Insurers?

Contracts entered into after 21 December 2012 will have to be gender netural, in terms of premiums payable by the consumer and benefits payable to the consumer.  The position of insurance contracts entered into prior to 21 December 2012 but for which the premiums and/or benefits are not due to be paid until after that date is less clear. Reinsurance contracts, provided that any differences in rates based on gender are not passed on to consumers, and group annuity contracts, provided rates are based on gender neutral factors, may be insulated from the effects of the ruling.     

Towards 21 December 2012

Insurers will now have to consider the requirement for gender neutrality in writing new business.  It is expected that the European Commission will enact an amending Directive to deal with the decision.  In the meantime, and pending enactment of amending national legislation, insurers will have to consider how best to adapt their business in time for the 21 December 2012 deadline or such earlier date as national legislation may provide.

The concern is that the ruling will impact negatively on consumers and will ultimately result in higher premiums and lower benefits.  This may well be the case as insurers may now be forced to account for the risk that they do not have the balance of male and female customers that they expected to have, with the result that the company’s risk profile is different to what was expected.

Contributed by John Larkin and Grant Murtagh.