New Anti-discrimination Directive: Impact on Insurers
On 2 July 2008, the Commission published a proposal for an EU Directive extending its anti-discrimination legislation to non-employment related areas (“the Draft Directive”). The Draft Directive must be agreed unanimously by all 27 EU Member States before it will become law. Member States will then have two years to transpose the directive into national law. When implemented, these proposals may have a significant impact on insurers in areas such as life, critical illness, health, travel and motor insurance where, in particular, the customer’s age and disability are taken into account when deciding premiums or benefits.
The recent Gender Directive, which became law in the UK on 1 April 2008, is likely to be used as guidance for the eventual implementation of the Draft Directive. For further information and guidance click here to see our law now on the Gender Directive.
Under Article 13 of the EC Treaty, one of the central tenets of the EU is to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation. Although the EU has already legislated to provide protection against discrimination in the fields of employment, occupation and vocational training, only discrimination based on sex and race has been prohibited in the EU beyond the employment market. The Draft Directive seeks to extend the areas of protection beyond the workplace to ensure equal treatment in all other areas including access to and supply of goods and services which are commercially available to the public.
Complaints of Discrimination in the Insurance Sector
Before publishing the Draft Directive, the Commission carried out a public on-line consultation which ran from July to October 2007. The views of organisations such as the Association of British Insurers (“ABI”) were also sought shortly thereafter. Amongst other things, the views collated by the Commission highlighted a widely held perception that discrimination in the insurance sector was widespread.
Before life, critical illness, health, motor and travel insurance policies are sold, insurers often take into account the customer’s gender, age and disability status when setting premiums and deciding benefits. A major survey carried out in the EU in early 2008 revealed that 40% of those questioned believed that discrimination against people due to their age (and 37% due to their disability) when buying insurance policies was very or fairly widespread. As such, 70% saw a need for specific legislation to protect people from discrimination outside the employment market (which is already legislated for) when buying insurance policies.
The use of gender, age or disability by insurers to assess the risk profile of customers does not necessarily amount to discrimination: it depends on the product, and whether the factors are shown to be key in the assessment of risk and fixing of price. For example, disability is irrelevant to home contents insurance but might be relevant for health insurance purposes. At present, this is not always reflected in the premium quotes given to disabled customers which can be higher across the spectrum of insurance products. The Draft Directive attempts to iron out these discrepancies.
The Working Document accompanying the Draft Directive lists various statistics, surveys and submissions by lobbyists to support its position that there is widespread discrimination based on age, especially in the provision of health, motor and travel insurance. An ABI report from last year stated that 20% of customers aged over 65 are not able to find any insurer willing to provide them with travel insurance, and 29% of attempts by those over 75 to obtain an insurance quote were unsuccessful, compared with 3% of those in the 30-49 age group. The Commission agrees that this is discriminatory, quoting an example of how it is possible for annual travel insurance for a 66 year old to have a premium loading of 100%, while the premium loading for winter sports is only 33%.
The Gender Directive
On 1 April 2008, Directive 2004/113/EC (“the Gender Directive”) was introduced into English law by the Sex Discrimination (Amendment of Legislation) Regulations 2008. The Gender Directive and its application into the laws of each Member State allows discrimination in the insurance market so long as it is based upon published, regularly updated statistical data which is used as a determining factor in the assessment of risk. This is likely to be used as guidance for the implementation of the Draft Directive.
Insurers are allowed to discriminate on the basis of sex in calculating premiums and benefits differently for men and women when offering terms and prices for insurance products. Before the Gender Directive, insurers were allowed to differentiate using their own internal data and statistics which did not have to be shared with the public at large or any individual customer applying for insurance. However, the implementation of the Gender Directive means that insurers can now only differentiate between men and women if the following conditions are met:
- The reasons for differentiating must be based on relevant and accurate actuarial and statistical data;
- That information must be compiled, published and regularly updated; and
- The differences of treatment must be proportionate having regard to the data used.
The Treasury has also issued guidelines on how the data must be published and updated in order to comply with the new laws. These include publishing it in a form that is intelligible to a non-insurance expert and identifying the source of the data and the period to which it relates. The data can be published on an individual or joint basis by insurers, although either way the information must be published within six months of entering into a contract for a new product.
The Draft Directive
Article 13 of the EC Treaty defines all areas of discrimination as being equally important and worthy of protection but, at present, the EU system of regulation creates a hierarchy of discrimination grounds, excluding any form of redress for anyone suffering discrimination on the grounds of age, disability, religion/belief or sexual orientation outside the employment market. The Commission considered all of the options available to bring EU and national law into line in all areas of discrimination, including by allowing self-regulation in the insurance sector. They concluded that the most appropriate measure to meet their objectives would be a multi-ground directive, similar to the Gender Directive, creating a legally binding measure across the EU to ensure a minimum level of protection from discrimination.
The Draft Directive provides that, in the provision of financial services, Member Sates may permit proportionate differences in treatment where, for the product in question, the use of age or disability is a key factor in the assessment of risk based on relevant and accurate actuarial or statistical data.
Impact on the Insurance Market
The Draft Directive allows for the reality that factors such as age and disability can be an essential part of the assessment of risk for certain insurance products, and therefore of price. The Proposal for the Draft Directive states: “If insurers are not allowed to take age and disability into account at all, the additional costs will have to be entirely borne by the rest of the “pool” of those insured, which would result in higher overall costs and lower availability of cover for consumers. The use of age and disability in the assessment of risk must be based on accurate data and statistics.”
The Working Document accompanying the Draft Directive makes it clear that the insurance industry will be able to continue to use age and disability as factors in the calculation of their premiums and benefits so long as the factors are “shown to be key factors for the assessment of risk”. They go on to say that, “The Commission would, however, encourage the insurance and banking industry to explain the rules and methods it applies when using disability in assessing risk on the basis of accurate and updated data”.
Although it is not set out in detail how this will be judged or regulated, the wording used is similar to that used in the Gender Directive which recently became law in England. If the Gender Directive is indeed a template, it is likely that, in order for the discrimination to fall within the exception, it would have to be based on relevant and accurate actuarial and statistical data which would need to be published and updated regularly. This appears to be the intention behind the proposal which states: “It should be noted that the concept of relevant risk factor is not new: it was used in Directive 2004/113/EC on equal treatment between men and women in access to goods and services”.
As yet there are no further detailed guidelines from the Treasury or the EC on what minimum standards would be expected, but it can be assumed that they will be similar to those in use under the Gender Directive. This will require the publishing of statistical data to support an insurer’s assessment of the risk in offering a product on appropriate terms. Insurers and the market as a whole will therefore need to assess whether it is easier and cheaper to do this on a market wide basis or for each firm to publish their own information independently.
Comment
The insurance market in England has recently had to make changes to how it justifies the way in which it differentiates between the sexes on the calculation of premiums and benefits. This was the result of the implementation into English law in April 2008 of the Gender Directive, which permits discrimination by insurance companies provided that data relevant to the use of sex as an actuarial factor is compiled, published and updated regularly in accordance with guidance issued by the Treasury.
The Draft Directive on equal treatment between persons irrespective of age, disability, religion/belief and sexual orientation uses the same language about allowing discrimination by insurance companies in these areas, so long as they are a determining factor in assessing the risk for specific products. This will need to be based upon relevant and accurate actuarial or statistical data, and no doubt in time there will be further guidance from the Treasury and the EU about how this data will need to be set out, published and updated. At this stage, it is likely that the rules allowing discrimination in the insurance sector will be implemented in a similar way to the Gender Directive with similar requirements for the justification of differentiation in areas such as age or disability to be based on detailed analysis of publicly available data.
Insurers should therefore bear in mind the likely future changes which will be required in assessing (in particular) age and disability as relevant factors before offering insurance at the same time as they are effecting systems for the publishing of gender statistics, so that they can adapt these systems to deal with age, disability, religion/belief and sexual orientation when the anti-discrimination legislation becomes law.
© Bloomberg Finance L .P. 2008. Originally published by Bloomberg Finance L .P. Reprinted by permission
