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Sex and the insurance industry

Faranaaz Parker

Earlier this month the European Court of Justice ruled that sex may no longer be used as a factor in determining insurance premiums. What now for SA?

Earlier this month the European Court of Justice ruled that, in keeping with the European Union’s (EU’s) anti-discrimination laws, sex may no longer be used as a factor in determining insurance premiums. But South African insurers say local consumers should not be too concerned that the ruling will have an impact here.

From December 2012, it will no longer be legal for European insurance companies to charge young women—who are deemed to be safer drivers than young men—less for their car insurance. It would also have an effect on how premiums for life insurance and pension funds are calculated. Until now women have paid higher premiums and received smaller payouts because, on average, they live longer than men.

The repercussions for insurance companies and for consumers would be huge. The Association of British Insurers has said that in the UK

  • women under the age of 25 could see an average rise of 25% to their car insurance premiums

  • men nearing retirement age could see an 8% drop in annuity rates while women see a 6% rise, and

  • for life insurance, the cost of coverage could increase up to 20% for women and fall by 10% for men.
  • There was a massive outcry over the ruling in the days and weeks since the ruling from politicians, insurance companies and the public at large. One member of the European Parliament described the ruling as “utter madness”. Closer to home, people began to ask the inevitable question—would South Africa follow suit?

    Where the ban came from
    Peter Doyle, president of the Actuarial Society of South Africa, said that when evaluating what the impact of the ruling might be on the insurance industry in South Africa, it was important to consider the context from which the judgement sprang.

    Over the past few years, the Council of the European Union has been working to ensure the equal treatment of men and women in areas such as employment and access to goods and services. It’s against this backdrop that the ruling considering sex discrimination in insurance premiums was made.

    When the ruling was made, the EU’s Justice Commissioner Viviane Reding said it was an important moment for gender equality in the EU as it had been more than 30 years since the Supreme Court of the United States prohibited different treatment of insured persons on the basis of their sex, in connection with pension funds.

    Reding pointed out that certain segments of the insurance industry have already started to move in the direction of gender equality, with insurers in countries such as Belgium, Bulgaria and The Netherlands applying unisex premiums for car insurance.

    Local laws, local context
    Doyle pointed out that the legal context in South Africa is very different to that in Europe, where the EU is trying to ensure that legislation in its member states complies with its Charter of Fundamental Rights, which states that equality between men and women must be ensured in all areas.

    “In South Africa, the context would be our Constitution. The South African Constitution already has very strong principles on unfair discrimination,” said Doyle. In addition, the Promotion of Equality and Prevention of Unfair Discrimination Act regulates the circumstances in which one may discriminate on the basis of criteria such as sex or age, for example.

    Section 14 of the Act deals with the determination of fairness or unfairness and states that if discrimination “reasonably and justifiably differentiates between persons according to objectively determinable criteria, intrinsic to the activity concerned”, then it is not deemed to be unfair.

    By this definition, using sex as one of the factors in calculating someone’s risk profile may not be illegal as this would be done according to specific statistical criteria integral to the insurance sector.

    Doyle said the key principle of insurance is that you can underwrite or discriminate on the basis of data, as long as the data is based on accurate facts and not on prejudice. So if statistics show that young women are less likely to have a car accident than young men then—as low-risk customers—they should be eligible for lower insurance premiums.

    Where to for South African insurers?
    Suzette Strydom, legal manager of the South African Insurance Association said that although the South African insurance industry usually takes its lead from the UK, she believes the local industry will resist any attempts to move in the same direction.

    And, while it’s possible that the change in the way insurance risk is calculated could filter through to South Africa eventually, the local insurance industry is not currently looking at excluding sex as one of the factors in underwriting insurance. “Where would you draw the line?” she asked. “What about age for example?”

    “The basis of insurance is the higher the risk, the higher the coverage ... If insurers have to make conservative assumptions [about risk profile], it will result in a less equitable pricing structure for the consumer,” she added.

    Meanwhile Doyle, who is attending a conference of the Association for Savings and Investment in South Africa (Asisa), said the EU ruling is sure to raise debate on the issue among those in the insurance industry. “People understand that this is an important issue and they’re looking at it and trying to understand the implications,” he said.

    However, he said, there are no definitive answers concerning how or if the European court ruling will affect the insurance industry in South Africa at all. “How and in what time-frame it will affect South Africa is very difficult to tell,” he said.


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