Arguments both for and against EU advocate-general Juliane Kokott’s demand that gender underwriting be outlawed are powerful. But applying anti-discrimination principles to insurance will always be problematic as underwriting is all about treating different groups of people differently.
With the European Court of Justice set to make a final ruling on the subject in a few months’ time, the ABI is lobbying hard to get an exemption.
You might expect all UK life offices to rubbish Kokott’s argument, yet Legal & General pension expert Adrian Boulding thinks she is right and says a far greater influence on longevity is ethnic origin, a factor we would never dream of using to underwrite insurance products.
Boulding’s argument has considerable weight. While the ethnic minority groups anti-discrimination supporters want to protect would be better off in terms of annuity rates if under-writing was permitted on such a basis, there would be uproar if that translated through to worse rates for other forms of insurance – and rightly so.
Selecting against people on grounds of ethnic origin is discriminatory. But when it comes to insurance, that argument is further complicated by today’s market.
While you cannot discriminate according to what passport somebody holds, you can on where in the UK people live. The deep-fried Mars Bar eaters of Glasgow or the pork scratching munchers of my native Wolverhampton for that matter may be a cliche of unhealthy living but they rightly get more for their annuity pound than those in better off areas. Meanwhile, they generally have to stump up more for their car insurance.
According to Kokott: “Gender, like race and ethnic origin, is inseparably linked to the insured person as an individual, over which he or she has no influence.”
But the same could be said of other genetic dispositions that qualify people for higher annuity rates and higher life and medical insurance premiums.
Do we allow underwriting in relation to some genetic differences that manifest themselves in medical conditions but not gender? And when it comes to medical underwriting, how do you treat conditions specific to each sex?
The ABI’s moratorium on using genetic information remains in place until November 2011. As long as it does so, we are limiting our underwriting to information we can access without having to do genetic tests – and gender is one such set of information.
But however you look at it, grouping individuals on grounds of gender and charging them more as a result has to be sex discrimination. It seems futile to argue otherwise. So it becomes an issue of whether the insurance industry should have an exemption to the EU’s equal treatment directive.
For the exemption to be taken away we would need to know that women will actually be better off to the extent that men’s rates get worse as a result of the change. Given the industry’s track record of transparency when it comes to how annuities are priced, it is easy to agree with those who believe they will not.
One expert suggested to me that only if annuity providers actually publish the loadings they give for every part of their product pricing could we be confident that a switch to unisex pricing would not be used to boost life office profits.
Furthermore, if the system is changed it would distort the market as annuity providers would do all they can to avoid getting women customers and motor insurers avoiding men.
The current annuity system discriminates on gender in the same way the group income protection system discriminates on age. The question is, do you need to do anything about it?
John Greenwood is editor of Corporate Adviser