Is car insurance discrimination ruling completely bonkers?
1 March 2011
The Court of Justice of the European Union (CJEU) has ruled that from December 2012, insurers will be prevented from charging different premiums on the basis of an insured person’s gender. A partner at a leading commercial law firm called September’s preemptive preliminary opinion “completely bonkers”. Can the same be said about the latest decision?
Coverage of the decision has already been largely negative. As well as involving Europe’s increasingly unpopular and possibly unelected judges, the ruling affects an interest group – insurance companies – with deep pockets and who are capable of sophisticated lobbying. And nobody wants to see their insurance premiums go up, if that is indeed to be the outcome of this ruling, something which is by no means clear. So expect to see plenty of critical articles. The Telegraph website is already sporting an unchallenged article/press release from Esure, including a video interview which begins with an advert for ESure’s “Sheila’s Wheels”.
But what did the court actually say? At 36 paragraphs, the judgment is refreshingly short, and the CJEU has also produced a handy press release. So there is little preventing the public from reading it for themselves.
In summary, the case goes back to Council Directive 2004/113, which implemented the principle of equal treatment between men and women in the access to and supply of goods and services. A directive is a piece of European Union law which tells member states that they have to achieve a certain goal, but leaves the detail of how to go about it to the states, within reason. States have to comply with directives because they agreed to do so when they signed up to the EU Treaty.
The 2004 Directive made clear that it applied to direct as well as indirect discrimination on the basis of gender. This is a legal distinction which is well-known to English lawyers. Direct discrimination means treating someone less favourably than others on the basis of a protected characteristic, such as gender or race. For example, telling an employee that “all women are stupid” would be direct discrimination. Indirect discrimination is when a policy has a disproportionate effect on a protected group, and cannot be justified. For example, requiring that a person had 25 years of experience or more to qualify for a job may be indirect age discrimination. But it may be legitimately justified as the job is complex and needs someone with experience.
Back to insurance. The Directive stated in its preamble, amongst other things:
(18) The use of actuarial factors related to sex is widespread in the provision of insurance and other related financial services. In order to ensure equal treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits.
But there was a get-out clause:
To avoid a sudden readjustment of the market, the implementation of this rule should apply only to new contracts concluded after the date of transposition of this Directive.
To that end, states were given the option to permit proportionate differences in insurance premiums using sex as a determining factor, as long as they published their data and reviewed the decision on 21 December 2012.
The question for CJEU, asked by a court in Belgium in a case brought by a consumer group, was whether the rules were compatible with Article 6(2) of the European Union Treaty, which states that the Union shall “respect fundamental rights”, as guaranteed by the European Convention on Human Rights.
The court held that it was not. The problem was that the get-out clause had no time limit. So states could continue to exempt car insurance from the wider principles of the Directive effectively forever:
given that Directive 2004/113 is silent as to the length of time during which those differences may continue to be applied, Member States which have made use of the option are permitted to allow insurers to apply the unequal treatment without any temporal limitation.
The court went on to discuss, briefly, whether car insurance premiums for men and women were in fact comparable with each other. This is important, as discrimination law requires that people in protected groups (for example, men and women) are treated equally but only in situations where the treatment of those groups can truly be said to be comparable. So, for example, it could never (well, probably never) be discriminatory for men to restricted in accessing maternity services as compared to women.
In this case, the respondent argued that that the cases were not comparable:
The Council expresses its doubts as to whether, in the context of certain branches of private insurance, the respective situations of men and women policyholders may be regarded as comparable, given that, from the point of view of the modus operandi of insurers, in accordance with which risks are placed in categories on the basis of statistics, the levels of insured risk may be different for men and for women.
However, the court’s view was that its hands were tied. The Directive itself clearly considers the situation to be comparable, as it provides a specific exemption for exactly that situation:
Accordingly, Directive 2004/113 is based on the premiss that, for the purposes of applying the principle of equal treatment for men and women, enshrined in Articles 21 and 23 of the Charter, the respective situations of men and women with regard to insurance premiums and benefits contracted by them are comparable.
So, in conclusion:
Such a provision, which enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits, works against the achievement of the objective of equal treatment between men and women, which is the purpose of Directive 2004/113, and is incompatible with Articles 21 and 23 of the Charter.
The outcome therefore is that from 21 December 2012, the exemption for car insurance premiums will end, and they will no longer be able to take gender into account as a means of setting the price.
So, is the ruling bonkers? From a legal perspective, not very. It is difficult to see how the court could have looked beyond the clear intention of the Directive (directives are, after all, all about intentions) to eventually include insurance premiums in gender equality rules.
One might argue that the Directive itself is bonkers, as it effectively takes away insurers’ rights to carefully calibrate premiums. Or at least it prevents insurers making a broad brush generalisation instead of finer grained and therefore more expensive assessments. It is apparently true that women are safer drivers than men, so why should insurers, which exist to calculate risk and then buy it from the public, not be able to factor this in too? Perhaps. But, as pointed out in the Irish Times, the ruling may in fact make things fairer all round. It should not be forgotten that, fairly unusually, it is young men who are being discriminated against in this market:
Insurers love citing the “boy-racer” factor, but the truth is there has been little transparency when it comes to insurers’ calculations of the “loadings” applied to men’s premiums. The ECJ ruling today means insurers will no longer be able to use gender as an excuse for mining profits from either male drivers or, crucially, from female pensioners.
There could also be effects on the life-insurance sector. Since women live longer then men on average, life insurance premiums have up to now taken that into account, making them cheaper for men. Guardian.co.uk has produced a detailed Q&A on the likely effects, which may be a mixture of good and bad for both sexes.
The decision may ultimately lead to insurers charging more for insurance, as suggested by three different people quoted in a Financial Times article. It may not. It may also lead to greater equality: it certainly should not be assumed that insurers have been acting in the best interests of the public, or women for that matter, up to now. And it is quite possible that the women-are-safer-drivers narrative has been used as an excuse to charge young men, who often have more disposable income, at a significant premium. In the meantime, expect to see a number of critical articles, perhaps even accompanied by unsubtle video adverts for car insurers. Which is a bit bonkers.
Update, 2 March 2011 – The Human Rights in Ireland Blog has an interesting analysis of the decision, particularly in relation to the drafting history of the Directive:
he European Commission (who is charged with initiating legislation within the EU) initially proposed that there should be no discrimination on the basis of gender in relation to insurance premiums and benefits, subject to EU member states having an opt-out for a maximum of six years. However, the Council of the European Union did not agree to this, and allowed an indefinite opt-out for member states. At no stage in the judgment did the CJEU at least consider this issue as relevant to Article 52. It could be argued that unisex premiums and benefits were considered in line with the passage of the Equal Treatment Directive at the time, were not deemed appropriate, and therefore an indefinite opt-out was allowed. I am not necessarily stating that I agree with this argument. However, this should at the least have been considered by the CJEU in deciding whether this was a case where Article 52 of the Charter of Fundamental Rights could have limited the general right to gender equality in this specific area of law.
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