Swiss Re disappointed with EU judgment on gender pricing

On 1 March the European Court of Justice announced that the current exemption for the use of gender as a risk factor in insurance contracts will be removed with effect from 21 December 2012. Swiss Re is disappointed with the Court’s decision and believes that this will impact all consumers, particularly those low risk groups who have benefited from relatively lower insurance premiums.

The judgment impacts the commercial freedom to price and underwrite according to the gender of the insured, and will result in higher prices for large sections of Europe's insurance-buying public.

Swiss Re opposes unfair discrimination of any kind, but supports the use of objective, relevant and reliable data to determine the cost of insurance. The freedom to quantify and group similar risks together, based on selection criteria that are actuarially justifiable, is essential to ensure that a consumer pays fair and competitive premiums on the risk he or she brings to the pool.

Alison Martin, Swiss Re’s Head Life & Health Products, commented: “The changes required to comply with the judgment inevitably create a new cost burden on insurers. It is important that the industry continues to pro-actively engage with the discussions on the pending draft Directive referring to age and disability discrimination. There are a number of similar issues at stake as per the Gender Directive and the loss of these pricing factors could have a further profound effect on private insurance.”

Swiss Re continues to highlight that, the fewer differentials the industry is allowed to apply, the less equitable pricing and rating structures become to the people applying for insurance. The cost of insurance is likely to rise overall, making it less affordable to many consumers.

Swiss Re will work with its clients to analyse the impact of the decision on their business and help them decide suitable ways to manage the change to unisex premiums. In addition, Swiss Re will continue to review the  judgment in the days and weeks to come alongside any regulatory or Commission statements to assess its full implications on the industry.

What will insurers need to do?

In light of this decision, insurers will need to undertake a thorough review of their product terms and conditions to identify those products that will be affected by the decision. In addition, careful thought needs to be given to the level of premiums that will need to be charged taking account of the current gender mix and how that mix may change once premiums are equalised.

In view of this uncertainty, long term price guarantees may become more expensive and for some products more difficult to support.

Not only will insurers have to make conservative assumptions with regard to how they set any aggregate premium level, but the operational risks and costs inherent in having to take  action across a large part, or even all, of the insured portfolio are substantial - for example, substantial changes of premium tables in IT systems for new business. After the initial efforts to ensure compliance, portfolios will need to be monitored closely to track any increases in lapses/non-renewal as policyholders switch contracts in search of cheaper rates. 

Swiss Re recognises that underwriting guidelines for individually underwritten contracts may need to be re-considered in the light of the ruling and any changes implemented as necessary. Swiss Re has already undertaken a significant amount of preparatory work looking at the impact on Life Guide, Swiss Re’s evidence-based online manual, and Magnum, Swiss Re’s automated underwriting system.

For more information please see Swiss Re voices concern over EU legal opinion on gender.

Published 1 March 2010

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