Gender Directive: will Sheilas' Wheels stop rolling?

The insurance industry anxiously awaits the European Court of Justice (ECJ) judgment in the Test-Achats case expected today.

The case, brought by a non-profit Belgian consumer organisation and two private individuals, tests the legality of sex differentiated actuarial factors for pricing insurance and benefit premiums. The judgment could force insurers fundamentally to change how they price personal lines risks, leading to a potential increase in prices of individual's premiums to provide for gender neutral rates.

Currently, the insurance market is able to assess individual's premiums and benefits using sex as a determining factor in assessing the risk. (See RPC's Legal Alert for background). This means that insurers can apply different insurance premiums, policy terms and benefits to women and men where that differential can be justified through gender-based actuarial factors and objective statistics. In practice, it is common for women to pay less for motor insurance and to receive lower annuities than men of the same age, as women are less likely to have driving accidents and have a longer life expectancy.

The Advocate General's opinion (delivered in September 2010) recommended that the ECJ declare the derogation in Article 5(2) of the Gender Directive invalid because of its incompatibility with the fundamental EU principle of equality between women and men enshrined in Article 6(2) of the Treaty on European Union. She seems to have conflated the ideas of equal treatment and being the same but did, at least, suggest that any declaration of invalidity should not have retroactive effect in order to prevent contractual confusion and a transitional period of three years to implement adjustments.

The Advocate General's justification is based on her consideration that it is "inappropriate to link insurance risks to a person's sex… like race and ethnic origin, gender is also a characteristic which is inseparably linked to the insured person as an individual and over which he has no influence."

Although the Advocate General's opinion is not binding on the ECJ, such opinions are usually followed. If the ECJ does follow the opinion, changes must be implemented into UK legal frameworks with very real implications for the insurance market. Michaela Koller, the director general of the CEA, the European insurance and reinsurance federation, warns of consumer detriment if insurers can no longer differentiate on basis of sex, explaining that "if this risk-based, factual principle is not maintained, premiums will increase, coverage will decrease and some products will be withdrawn from the market entirely."

We will post an update on this issue as soon as the ECJ judgment is published.