David Gulland of RGA analyses the ECJ's decision to ban gender based pricing and asks where underwriting goes from here?
As expected, the Court of Justice of the European Union (ECJ) struck down the provisions of a Directive which allowed gender to be considered in setting insurance premiums.
Unfortunately, the ruling provides no guidance concerning the practical implications of this decision for our industry.
Here are our thoughts as to the main areas of uncertainty and what the life insurance industry needs to do going forward:
1 - How should reviewable premium business be treated?
We believe that there is an extremely strong case to leave existing contracts taken out before 21 December 2012 unchanged after that date and we trust that the UK authorities and industry will be united in this view.
However the position on reviewable business is less clear. In particular can differential changes be made to reviewable rates after December 2012?
Different insurers have differing degrees of sophistication in how they apply reviews and so this is a key area for detailed legal and regulatory analysis.
2 - What level of sophistication in underwriting can be used?
Pricing is not a simple matter of just looking at an applicant's gender.
Our underwriting manuals are derived from evidence-based medicine with the importance of certain medical details, such as blood pressure, varying by gender.
To what extent can such differences remain in the future? We consider that they should be allowed to remain as they are a result of clear individual characteristics of the policyholder and not simply a function of gender.
3 - What will be next?
The Charter of Fundamental Rights used to justify the Court's decision includes disability and genetic features in the list of aspects on which discrimination is prohibited.
While such discrimination is justifiably banned in areas such as employment it is difficult to see how a voluntary, private sector life insurance industry can remain sustainable if such features cannot be used in pricing.
A mature, objective discussion needs to be held now across the EU as to what role voluntary private insurance should take in meeting citizen's needs, and how regulation can then support that objective.
Various models could be designed, but at present there is a real danger that the current model of voluntary private insurance will be unsustainable if it is not possible to match the costs of an insured population to its risks.
We will not move forward by simply criticizing the ECJ judgment, what we now need to do is try and find a way of continuing to meet customer needs in a sustainable manner.
David Gulland is managing director of reinsurer RGA.
