Between a rock and a hard place

The Advocate General of the European Court has recently opined that "the use of actuarial factors based on sex is incompatible with the principle of equal treatment for men and women".  This is an interesting example of a collision between a fine ideal (equal treatment for men and women) and everyday insurance realities (young males crash a lot of cars and women tend to live longer than men).

However, the hopes of any consumers expecting cheaper insurance prices are likely to be dashed.  Restricting insurers' ability to price according to risk will impose costs, as outlined in a speech by Calum McCarthy the last time this subject was topical.  Like any other business, the insurance industry will pass any extra costs to consumers in the form of higher prices.

Insurance companies might not be top of people's favourite institutions, but the text of the accompanying press release suggests a lack of understanding of how insurers run their business: "different insurance risks can at most be associated statistically with gender."  How else should insurers measure risk?  The fact that insurers use statistical associations between risk and risk factors is not a flaw, but rather the cornerstone of rational risk management.

If the use of gender is forbidden in insurance pricing, fans of Franz Kafka and Joseph Heller will appreciate the bizarre position in which EU insurers would find themselves.  On the one hand they are not to use gender in pricing because "the Advocate General is of the opinion that [gender] does not relate to any clear biological differences between insured persons".  On the other hand, the EU's own Solvency II framework will require gender-differentiated rates in reserving precisely because gender is such an important rating factor.  


Paul Harding
(Nov 12, 2010)
Stephen, that's a great point about Solvency II. We'd all fail the use test. Have you made this point to the EU?

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Stephen Richards
Stephen Richards is the Managing Director of Longevitas