Court Ruling Says Cheaper Insurance Deals Based on Gender Are Illegal

Insurers shouldn’t be allowed to take gender into consideration when calculating premiums, the European Union’s highest court said in a ruling that is likely to increase the price of insurance for women.

The present system “works against the achievement of the objective of equal treatment” for men and women and should end by the end of next year, the EU Court of Justice, the 27-nation region’s top court, ruled today.

Auto insurance premiums for female drivers could rise as much as 50 percent as a result of the ruling, according to KPMG LLP. It will also result in insurers changing the way they market policies and assess risks to ensure they get “only the better performing female business,” the accounting and consulting firm said.

The ruling “flies in the face of common sense” and is “completely disadvantageous to the very people it was intended to protect,” said Adrian Brown, chief executive of London-based RSA Insurance Group Plc, the U.K.’s biggest non-life insurer by market value. “Consumers are going to have to pay the price for an illogical change in the law.”

Decisions by the Luxembourg-based tribunal are binding and can’t be appealed. An existing EU equality law, introduced in 2004, allows the region’s countries to differentiate between men and women when calculating insurance premiums if data shows “sex is a determining factor in the assessment of risk.”

‘Bad News’

Michaela Koller, director general of the European insurance and reinsurance federation, CEA, said today’s ruling was “bad news.”

“Europe-wide the effect on the price and benefits and on the choice of insurance products for consumers could be significant,” she said. Insurers “will now face significant additional costs in reassessing data, transforming premiums and changing terms and conditions and marketing materials.”

“Young female drivers pay less for motor insurance because they are less likely to have accidents and therefore women make fewer claims than men,” the Association of British Insurers said in a statement. “For life insurance, women on average pay less to reflect their longer life expectancy, while pension income for males is often higher because men typically have fewer years in retirement.”

Sheilas’ Wheels, owned by privately held Esure Insurance Ltd., and Diamond, owned by Admiral Group Plc, are the U.K.’s two biggest women-focused car insurers. Sheila’s Wheels, which also offers handbag insurance, will comply with the ruling while continuing to target women drivers, spokesman Adrian Webb said.

Most Males

“Sheilas’ Wheels has always insured men but most males simply aren’t attracted to our brand and we don’t see this changing,” said Webb.

Admiral said in an e-mailed statement it would use the transition period to introduce a “gender-neutral pricing structure.”

Admiral climbed 19 pence, or 1.1 percent, to 1,708 pence in London trading.

“It’s as wrong to treat the same things differently as it is wrong to treat different things the same way,” said Markus Riess, the head of the German unit of Allianz SE, Europe’s biggest insurer, at a conference in Munich today. “It’s to be expected this will make insurance more expensive.”

Statements that insurance will become more expensive are “plain wrong,” said German insurance customer group, Bund der Versicherten.

‘Won’t Rise’

“Since claims won’t increase with unisex premiums, one or the other person may end up paying a little more, but overall the average premiums won’t rise,” said Hartmuth Wrocklage, head of the BdV. “If premiums overall rose, it would serve only to increase profit, not to balance out supposed costs of the unisex premiums.”

The European Commission, the EU’s executive agency, said it was “an important moment forgender equality” in the region.

Viviane Reding, the EU’s justice commissioner, said she will meet with insurance industry officials to discuss the ruling.

According to research by Oxera last year that was commissioned by the ABI, the British insurers’ group, women younger than 25 could see their auto insurance costs rise by an average 25 percent and life insurance costs could increase by as much as 20 percent, while men could see a drop of 10 percent.

Statistical Analysis

There are insurers who have “years and years’ worth of insurance policies,” written with gender in mind, said Philip Jarvis, a partner at law firm Allen & Overy LLP in London.

“Insurers will no longer be able to rely on statistical analysis to discriminate between men and women for the purpose of pricing products,” said Jarvis. “The economic effect will presumably be that these costs will have to be rebalanced.”

Companies will have to find another way of more accurately pricing the risk of an individual life, such as based on lifestyle or health, said Jarvis.

“It will be crucial to ensure this news does not put people off having vital insurance,” said Maggie Craig, ABI’s acting director general.

Belgian consumer group Test-Achats in 2008 challenged the country’s law implementing the EU rule. Belgium’s Constitutional Court a year later referred the case to the EU tribunal, arguing it had to establish whether the derogation in the region-wide law underlying all national laws was valid or not.

The consumer group in an e-mailed statement said it was a “victory for consumers, the men and women” of the EU.

The case is: C-236/09, Association Belge des Consommateurs Test-Achats and Others.