David Lewin, Managing Director
Shortly before Christmas 2011, the European Commission published its guidelines for the insurance industry to help insurers implement necessary changes in light of the Court of Justice of the European Union (CJEU) judgment in the Test-Achats Case (C 239/06) of March 1, 2011. The guidelines’ publication followed a meeting of insurers with European Union (EU) Justice Commissioner Viviane Reding in September 2011.
In the Test-Achats (Belgian consumers association) judgment, the CJEU held Article 5(2) of Council Directive 2004/113/EC, known as the Gender Directive, to be incompatible with European Law. This directive allowed member states to implement provisions in their national laws that allowed proportionate differences in individual’s premiums and benefits where gender is used to assess risks based on actuarial and statistical data.
Article 5(2) reads:
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 as 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.
The CJEU found that this directive runs counter to the achievement of equal treatment of men and women and constitutes discrimination, which is not compatible with the Charter of the Fundamental Rights of the EU. The expressed purpose of the directive, as stated in Article 1, is to achieve equal treatment and combat discrimination in the access to and supply of goods and services. Since there is no temporal limitation in the directive, the derogation in Article 5(2) may continue indefinitely and consequently would undermine the purpose of the directive indefinitely.
Because the Test-Achats judgment will have a significant effect on insurance contracts and to provide the industry with time to adapt, the court held that Article 5(2) will be invalid effective December 21, 2012.
All member states currently allow gender differentiation for at least one type of insurance. Common examples are car insurance, life insurance and private health insurance. The impact of the court’s judgment is that from December 21, 2012, onwards the requirements of Article 5(1) of Directive 2004/113/EC must be met without the possibility of a derogation. Article 5(1) states that:
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 purpose of insurance and related financial services shall not result in differences in individuals’ premiums and benefits.
To date, the directive has not been amended to reflect the Test-Achats judgment, and the Commission has only presented guidelines on the practical implications of the judgment. These guidelines are not binding, and courts may hold otherwise. An amendment to the directive would implement the view of the Commission and the European Council into a legislative framework, but it remains to be seen if and when this will take place.
The Commission’s guidelines deal mainly with the impact of the Test-Achats judgment on new contracts and strive to clearly define the term “new contract” in order to achieve a uniform interpretation throughout the EU. Differing interpretations of this term would effectively undermine the objective of the directive and the Test-Achats judgment.
So, the Commission applies Article 5(1) to all situations in which a contractual agreement requires the consent of all parties involved, including amendments to existing contracts. Moreover, it covers contracts drafted and negotiated but not yet concluded and where the latest necessary expression of consent by one party occurs after December 21, 2012. Consequently, new contracts in that sense are contracts concluded for the first time after December 21, 2012. Contracts are also considered to be new if they were originally concluded before December 21, 2012, but have been extended through extension agreements completed after that date.
Under the Test-Achats judgment, the term “new contract” does not cover automatic extensions of existing contracts; adjustments made to individual elements of existing contracts such as premium changes; top-up or follow-on policies activated by a unilateral decision of the policyholder and whose terms were pre-agreed in contracts concluded before December 21, 2012; and policies included in an insurance portfolio that is transferred from one insurer to another.
Additionally, the judgment does not cover the use of gender as a risk rating for insurance products, but only if such rating does not result in differentiation on an individual level. Further, this means that reinsurance products and prices do not fall within the scope of the Test-Achats judgment as long as there is no direct effect on the individual policyholder, nor is there collection, storage and usage of gender status or related information. Hence, for internal risk assessment or marketing and advertising purposes, the usage of gender is still possible. This way, insurers can proactively seek to maintain a balanced portfolio, as long as access to a specific product is not denied simply due to a person’s gender.
It also remains possible for insurers to take into account risk factors, such as health status and family history, where gender may be relevant with respect to certain physiological differences between men and women. This may likely result in the circumvention of the gender issue by using other factors that are influenced by gender such as health and lifestyle.
However, Article 4(5) states:
This Directive shall not preclude differences in treatment, if the provision of the goods and services exclusively or primarily to members of one sex is justified by a legitimate aim and the means of achieving that aim are appropriate and necessary.
Offering gender-specific insurance products to cover conditions that exclusively or primarily concern men or women, such as breast cancer or prostate cancer, remains possible. However, this is prohibited for pregnancy and maternity according to Article 5(3).
In its guidelines, the Commission gives an example where gender indirectly plays a role but price differentiation is still possible. Car insurance may be priced differently based on the size of a car engine, even though statistically men may drive cars with more powerful engines than women.
Since the judgment and guidelines deal with a directive, the new changes have yet to be implemented into national law. The Commission will monitor related developments closely and report on the new legislation in 2014.
The practical impact of the Test-Achats judgment cannot be fully determined yet. Many members of the insurance industry claimed that it would lead to an increase in premiums. However, it is likely that some kind of equilibrium will be created because the judgment seems to lead to an increase in lower premiums and also a reduction of higher premiums. Furthermore, not all gender-based differences are outlawed. Since most member states have not amended existing legislation, most insurers are still uncertain of the legal requirements placed on the new products.
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David Lewin, Managing Director