Procedural background
In Belgium, until now, differences in premiums and benefits in life insurance have been permitted by the Act of 21 December 2007. It was this Act against which Test-Achats brought an action for annulment before the Constitu-tional Court on 26 June 2008. Since the Act was based on a derogation in the European Gender Directive (article 5, 2 of Directive 2004/113/EC) from the fundamental rule that premiums and benefits for men and women should be alike in all insurance contracts, the Belgian Constitutional Court had asked the ECJ to decide on the question of the compatibility of this derogation with the principle of equal treatment of women and men as a basic principle of EU law. The Court thereby upheld the earlier finding of Advocate-General Juliane Kokott in her opinion of 30 September 2010 (an opinion we discussed in our previous e-zine). The Advocate-General found that the use of actuarial factors based on sex was incompatible with the principle of equal treatment of women and men. In spite of the fact that the Advocate-General was suggesting that in some cases the use of different insurance tariffs for women and men can be considered legitimate, she recommended the Court to declare Article 5, 2 invalid.
Transitional period
Whereas the Advocate-General had proposed a three-year transitional period, in order to avoid too much legal uncertainty for those parties who relied on the validity of the respective national provisions adopted on the basis of Article 5, 2, the ECJ has shortened this transitional period. Already from 21 December 2012 (less than two years from now), it will become unlawful to use gender as a risk factor in insurance contracts. Why this particular date? According to Article 5, 2 of the Gender Directive, 21 December 2012 is the date by which the Member States had to review their decision to make use of the Article 5, 2 option. One of the Court’s main arguments for deciding that Article 5, 2 is invalid is that the Gender Directive is silent as to the length of time during which differ-ences in individuals’ premiums and benefits may continue to be applied after this date. The opportunity for Mem-ber States to permit insurers to apply unequal treatment between women and men without any temporal limitation does, according to the ECJ, not comply with the purpose of the Directive to apply unisex rules on premiums and benefits. The Court therefore declares Article 5, 2 to be invalid with effect from 21 December 2012.
Principle of equal treatment
Apart from the risk that the derogation from the unisex rule could persist indefinitely, the Court also refers to the overriding principle of equal treatment for men and women, as it is enshrined in Articles 21 and 23 of the Charter of Fundamental Rights. It should be noted that the Court’s ruling is one of the first decisions in the post-Lisbon era that expressly refers to provisions in the Charter as a touchstone for deciding on the validity of EU legislation. With effect from 1 December 2009 (date of entry into force of the Treaty of Lisbon), the Charter has the same legal status as the EU Treaties. European Commission Vice-President Viviane Reding already declared that the Court’s ruling shows how essential it is that all laws proposed or amended by the European institutions do comply with the Charter. The Commissioner found it important to note that the derogation for insurers in the Gender Directive was not part of the Commission’s initial proposal for the Directive and that it was the Council that only added this derogation during the legislative process.
Comparability argument
In its reasoning, the ECJ explicitly refers to one of the arguments that were made by the Council during the Court’s proceedings in order to defend the derogation of Article 5, 2. The Council had argued that Article 5, 2 was merely intended to make it possible “not to treat different situations in the same way”. In the Council’s view, the respective situations of male and female policyholders might not be comparable, since the levels of insured risk may be different for men and for women. The Court confirms that, in its case-law, it has consistently held that the principle of equal treatment requires that comparable situations must not be treated differently, and different situations must not be treated in the same way, unless such treatment is objectively justified. It also recalls its earlier case-law, where it assumed that the comparability of situations must be assessed in the light of the sub-ject matter and purpose of the measure which makes the distinction. Since it is expressly stated in Recital 18 of the Gender Directive that “in order to ensure equal treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits”, the Court finds the respec-tive situations of men and women with regard to insurance premiums and benefits contracted by them, to be comparable. Since Article 5, 2 of the Gender Directive allows insurance companies to differentiate between men and women for the purpose of calculating premiums and benefits and this without any temporal limitation, a violation of Articles 21 and 23 of the EU Charter could be established.
No possibility of justification
It needs to be said that the Court’s line of reasoning is much more straightforward than the arguments that were upheld by Advocate-General Kokott in the same case. Despite the fact that the Advocate-General had proposed that the Court declare Article 5, 2 invalid, she still accepted that, in limited circumstances, direct discrimination on grounds of sex is permissible. She suggested that, despite her finding that no relevant differences can be de-duced from mere statistical differences between men and women (different life expectancy of male and female insureds, differences in their inclination to use medical services, differences in their propensity to take risks while driving, ...), clearly demonstrable biological differences between the sexes could be considered as grounds justi-fying unequal treatment. Whereas she considered that purely financial considerations, such as the danger of an increase in premiums for the insured, would on the one hand not constitute a material reason which would make discrimination on grounds of sex permissible, a serious danger to the financial equilibrium of the insurance com-pany concerned could on the other hand be accepted as a justification.
Based on the gaps the Advocate-General apparently seemed to leave with reference to the possibility of justifica-tion of direct discrimination in insurance relations, the ECJ could have provided the Belgian Constitutional Court with a binding reading of Article 5, 2, giving strict guidance on the conditions under which justification could take place. By stating that Article 5, 2 is by all means contrary to the fundamental principle of equal treatment for men and women, the Court now confirms the strict position it had already revealed in the 2007 Lindorfer-ruling (C-227/04 P). In that case, the ECJ decided that the use of gender-based actuarial values (yet within the framework of EU officials’ pensions rights), was not compatible with the need for sound financial management of a pension scheme. In the Lindorfer-case, the ECJ at least admitted that direct discrimination can in certain cases be justi-fied. In the case at hand, no room for any such justification seems to be left. This of course results from the fact that the Court is moving within the boundaries of the Gender Directive, which clearly excludes the possibility of justification in cases of direct discrimination.
Temporal application
The ECJ declares Article 5, 2 of the Gender Directive to be invalid with effect from 21 December 2012. The ques-tion arises as to the consequences of this ruling to insurance contracts that already exist at the date of 21 De-cember 2012. The Court provides no details on this issue in its ruling.
One could argue that the Court’s ruling only affects contracts concluded after 21 December 2012. An argument in favour of such hypothesis is that with regard to the exact consequences of the transitional period that is given by the Court, an interpretation by analogy could be used with the initial transitional period as it is included in Article 5, paragraph 1 of the Gender Directive. This article requires that Member States must ensure that the unisex rule for premiums and benefits in insurance contracts falling within the scope of the Gender Directive, will only apply to new contracts concluded after 21 December 2007. To meet the concerns that also underlay the transitional period of Article 5, 1 (avoid a sudden readjustment of the market), one could indeed argue that the same principle should apply to the consequences of Article 5, 2’s invalidity. This would imply that the unisex rule would only apply to premiums and benefits under contracts that were concluded after 21 December 2012.
Where such a regime would, practically speaking, be the most obvious, there is reasonable doubt whether this is the exact implication of the Court’s ruling. One could, in this respect, refer to the opinion of Advocate-General Kokott. The Advocate-General explicitly stated that, after the transitional period she proposed had expired (the Advocate-General had suggested a three-year period), all future insurance premiums, in the calculation of which sex-specific differences are still being made, and also the benefits financed out of the new premiums, would have to be neutral in terms of sex. To this point of view, she adds that this rule would also have to apply to existing contracts. By analogy with the regime of the so-called Barber-protocol (temporal effects of unisex pension age in occupational pensions), to which the Advocate-General explicitly refers, the temporal application of the Court’s ruling would boil down to a situation where premiums and benefits which can be attributed to periods prior to termination of the transitional period, in casu determined on the date of 21 December 2012, could still depend on the insured’s gender. Premiums and benefits relating to periods after the date should, in that case, be gender neutral.
It is possible that, as a result of the legal uncertainty that the Court’s ruling brings about with regard to its applica-tion to already existing contracts, Member States will try to fix a certain reading of the temporal effects of the ruling, just like they did on the occasion of the Barber decision. Insurers could take advantage of the transitional period to approach the European Commission, in order to help enforce favourable interpretation. That legislative action is still possible in this field, can be deduced from the ECJ’s statement that is for the EU legislature to im-plement the principle of equality for men and women – more specifically, the application of the rule of unisex premiums and benefits – gradually, with appropriate transitional periods, having regard to the development of economic and social conditions within the EU (Recital 20-22 of the Court’s ruling). This certainly constitutes a route to be further explored by the insurance industry.
Legal effects – Belgium
The ECJ’s response to the request for a preliminary ruling of the Belgian Constitutional Court is no decision on the underlying dispute. It is for the Belgian Constitutional Court to decide on the case, of course in accordance with the ECJ’s decision. The Belgian constitutional court will have to decide on the compatibility of the Belgian Act of 21 December 2007 “amending the Act of 10 May 2007 combating discrimination between men and women with respect to gender in insurance matters” with the equality provisions under the Belgian Constitution. In the present circumstances, the Belgian Constitutional Court will be obliged to accept that Article 5, 2 is contrary to the principle of equal treatment as it is enshrined in the Charter of Fundamental Rights. As it is assumed that the equality provisions in the Belgian Constitution need to be read in conjunction with this Charter, the Belgian Constitutional Court will have no option but to annul the Act of 21 December 2007. Since this Act contained a provi-sion which replaced the former Article 10 of the Act of 10 May 2007 with a new Article 10, explicitly allowing differences in premiums and benefits for men and women in life insurance, the former Article 10 will “come back to life”. This will imply that unisex premiums and benefits will be obligatory in all insurance contracts.
The question remains whether the Belgian Constitutional Court will be able to maintain the consequences of the annulled Act of 21 December 2007 up to 20 December 2012, thereby deferring the date on which the legislation in question would lose its binding force. In the recent Filipiak and Winner-Wetten rulings (C-314/08 and C-409/06) the ECJ has already stated that the deferral by a Constitutional Court of the date on which the national provisions at issue will lose their binding force, cannot prevent national courts from respecting the principle of primacy of EU law when they find that the national legislation infringes directly effective provisions of EU law (such as the Char-ter of Fundamental Rights). Since in this case, it was the ECJ itself that imposed a transitional period, running through to 21 December 2012, it seems however unlikely that Belgian national courts will be eager to accept that the Act of 21 December 2007 will lose its binding force before 21 December 2012. It is therefore fair to say that before 21 December 2012, it will be “business as usual” for insurance companies doing business in Belgium.
Legal effects – Other Member States
Although the ECJ decision was raised by the Belgian Constitutional Court, it is clear that the ruling will of course have effect in other Member States. As was pointed out by last year’s study by Civic Consulting of discrimination in financial services in the EU, all 27 Member States have made use of the option of Article 5, 2 of the Gender Directive. Most Member States not only allowed derogations from the unisex rule in life insurance, but also in other insurance contracts. The ECJ did not make a distinction as to whether the unisex rule should apply to life or non-life insurance. Article 5, 2 was declared invalid integrally. Due to the invalidity of this provision, all national provisions that have been adopted on the basis of this article, will have to be disregarded by national courts (whether they concern life or non-life insurance) and this from the date of 21 December 2012. National legislators will have to consider legislative changes before this date. These legislators will in any event be very anxious to revoke the derogation before the end of the transitional period.
Effects for insurance products
In Belgium, the ECJ’s ruling will only affect life insurance, since only in life insurance was a derogation was al-lowed from the general rule that premiums for men and women should be alike. The impact on life insurance will however be considerable. The cheaper premiums will increase to be in line with the more expensive, while the more generous benefits will be reduced to be in line with the less generous ones. Insurance companies argue that any improvement in the insurance terms of one group of consumers (e.g. females), can only be achieved to the detriment of other groups of consumers.
The effect of the judgment will be even more far-reaching in other Member States, which derogated from the unisex principle for a broad range of insurance products. As was pointed out by a 2010 study of the Association of British Insurers (ABI), the impact on the ban on using gender as a risk-rating factor will vary by insurance product.
Generally speaking, it is to be expected that under unisex pricing, females will be worse off for motor insurance, term life insurance and loan insurance, while in the case of (private pension) annuities, males will be worse off. How a switch to the unisex rule will affect a given insurance product will not only depend on the insurance prod-uct concerned, but also on the respective proportions of males and females in the insurer’s book. Insurers with a more balanced insurance book, comprising approximately equal numbers of males and females, may find it easier to adapt their products to unisex rates than an insurer specialised in provision to just one sex. It is further expected that larger insurers in the market will have a greater capacity to deal with a switch to unisex premiums and benefits because they have more statistical data to tailor their offers to the actual claims experience.
Costs
A ban on a relevant rating factor such as gender will in any event not be achievable without costs. The ABI, as well as the CEA (the European Insurance and Reinsurance Federation) confirm that over the next twenty months, insurers will have to make large scale changes to pricing, selling and marketing of insurance products. Apart from transforming premiums, these changes will include the amendment of all affected policy documentation. Custom-ers will have to be contacted with new information. Computer systems will have to be changed and data will have to be reassessed. Insurance brokers must have the right pricing information and marketing materials will have to be updated. These factors will, at least on a short term basis, be responsible for a rise in premiums for both women and men.
Alternative risk-pricing methods
One of the possible effects of a ban on gender-based insurance pricing will be that insurance companies will start exploring alternative factors that closely correlate to risk and that are still verifiable. One can think of socio-economic circumstances, such as the insured’s occupation or housing and also of individual habits such as sporting activities. While the use of such risk factors will certainly imply an increase in costs, competitive benefits could be generated for those who will be able to develop such risk-pricing methods. Although alternative risk factors that are a proxy to gender, such as certain occupations (firemen or nurses?), could lead to a finding of indirect discrimination, at least indirect discrimination can be justified by showing a legitimate aim, and by show-ing that the means of achieving that aim are appropriate and necessary.
What about pensions?
Since the ECJ was only asked to rule on the validity of a provision in the Gender Directive, the judgment will, for now, not have particular effects in fields that are not regulated by the Directive. As it is clearly put in Article 3, 4 of the Directive, it shall not only apply to matters of employment and occupation. This means that the Directive will only apply to insurance and pensions which are private, voluntary and separate from the employment relationship (see Recital 15 of the Directive). Equal treatment for men and women in occupational pension schemes is cov-ered by a different Directive (2006/54/EC) that contains explicit derogations for gender-based actuarial factors. It is, however, not to be excluded that comparable procedures could be started, questioning the validity of these derogations. Before this is to happen, or before any legislative reform will take place in the aftermath of the ECJ’s ruling, occupational pensions will not be affected.
What about age and disability?
In our previous e-zine we already mentioned that a ruling that would declare Article 5, 2 of the Gender Directive invalid, therewith imposing unisex tariffs in insurance contracts, would possibly have an additional effect on in-surance classification that takes into account the factors of age and disability. These risk factors are widely used in the determination of premiums and benefits in private health insurance, life insurance and car insurance. At present, negotiations are still being held on the text of a new Directive, that will contain a prohibition on discrimi-nation on grounds of (among others) age and disability in the access to and supply of goods and services. In the Commission’s initial proposal for such a Directive, a provision was included that, in the field of financial services (including insurance) differences in treatment on the basis of age and disability would be allowed for in almost the same terms as Article 5, 2 of the Gender Directive. It goes without saying that the opt-out in this proposal will certainly be reconsidered. If it would be a Council objective to maintain a derogation for insurance contracts or financial services in this Directive, it is to be expected that, taking into account the ECJ’s ruling on gender equal-ity, a temporal limitation will be put forward. It was indeed the risk that a derogation would remain indefinitely that was used as one of the main arguments for declaring Article 5, 2 of the Gender Directive invalid. Setting a time limit for an age and disability derogation would, in future procedures, create a strong legal argument in favour of such derogation.
Conclusion
The ECJ’s decision on gender discrimination in the setting of insurance premiums and benefits is certainly to be considered “historic”. It is the first time the ECJ so clearly declares itself to be opposed to the use of sex-specific actuarial factors in the calculation of premiums and benefits. In the Court’s eyes, the respective situations of men and women are comparable with regard to insurance premiums and benefits. Since comparable situations should not be treated differently, the Court found the possibility of differences in premiums and benefits for women and men to be discriminatory. It also found no possibility of justification of unequal treatment for women and men in insurance matters. The Advocate-General had nevertheless suggested that in cases such as the presence of clearly biological differences between women and men or in situations such as a serious danger to the financial equilibrium of the insurance company, gender-based differences in premiums and benefits could be justified. Although the ECJ is implicitly encouraging insurance companies to make use of alternative risk-factors, closely correlating to risk, no assessment has been made as to the viability of a solution where gender is used in combi-nation with alternative risk factors. Under these assumptions, insurance companies will need to be very creative in finding economically viable market solutions bringing insurance pricing closer to personal risk. One advantage is that they will at least be able to do so on the same level playing field, no longer dependant on the choices the different Member States have made with regard to the derogation of Article 5, 2.
