Financial services: The European insurance industry adopts unisex pricing.
The European Commission recently adopted guidelines requiring the insurance industry to implement unisex pricing after a ruling by the European Court of Justice determined the use of different premiums for men and women constitutes sex discrimination.
The ruling went into effect at the close of 2012. For many, including European justice commissioner Viviane Reding, the decision is a civil rights victory. “This is a matter of respect for fundamental rights,” she says. “It is an important moment for gender equality in the European Union.” But others see the ruling as an unfair imposition that forces companies to abandon risk-based rate assessment in favour of socially determined rates.
According to Jérôme Wiwinius of Lalux Assurances-Vie, “The ruling makes no sense.” He sees no connection between gender discrimination and the use of scientific variables in determining price structures.
“It is a fact that women live five to seven years longer than men,” he says. “This information is proven by statistics, yet we can’t use it anymore so we re-evaluate portfolios and put in new variables. But it always comes back to the same question: are you female or are you male?”
According to Perry Resl, also of Lalux Assurances-Vie, two main insurances will be impacted by the directive: mortgages and annuities. Still, he expects little change in the Luxembourg market. “Mortgages aren’t driven by a demand for insurance,” he says. “And most of those are bought by couples, so it will even out.”
He applies the same logic to annuities. “We see couples taking out two separate contracts for annuities, so that will even out, as well.” Resl does concede that some Lalux products will see substantial changes. “Mortgage insurance will be more expensive for women and less expensive for men by about ten percent,” he says.
Marc Folmer, corporate secretary of Groupe Baloise Assurances, takes a more philosophical view of the court order. “This is a topic about equal treatment if you see it in a global way,” he says. “Surely it is a very important topic for our company. It’s obvious that we can’t treat people differently in these matters.”
But he isn’t entirely unsympathetic to the ruling’s detractors. “We are talking about these differences in gender based on scientifically objective differences. You have a longer life and more illness and claims by women. These facts are there. They are not linked to any ideology. They are clear scientific findings, and they have worked for us until now.”
Nevertheless, Folmer stresses that these differences are merely statistical in his line of work. “It’s okay to rethink our approach,” he says, “and it’s easy to harmonise prices. Men and women are equal, yet there are scientific differences. There are higher mortality risks depending on gender. So we have to find a price that will cope with this artificial equality and still offer security. Knowing that we are facing competition within the market, we must balance both sides of this--the right price for buyer and for the market.”
While companies all over Europe are working to adjust pricing strategies, ING Life has taken a uniquely customer service oriented approach to the directive--they have decided to absorb the cost internally, rather than pass the burden along to their policy holders.
Michael Cancian, head of product management, says his company is managing to minimise the effect of this ruling on customers. “The fear was a negative impact; suddenly women would be paying much more than in the past. So at ING Life, we decided to be reasonably fair with customers and to treat woman and men with the same tariff. Both sexes will pay the same amount and we will absorb the cost.”
ING manages this feat by leveraging its’ demographic of more men than women to offset the cost.
“The strategy and philosophy of our group is very customer centred,” says Folmer. “Everything comes at a cost, but we focus on service to clients. We are making less profit off of women, yet we are still profitable.”
And that’s just the response the European Union was hoping for. The press release announcing the ruling states the following: “Gender is a determining risk-rating factor for at least three main product categories: motor insurance, life insurance/annuities and private health insurance. It is likely that a transition towards unisex pricing will have consequences on premiums and/or benefits. The insurance industry is competitive and innovative. It should be in a position to make these adjustments and offer attractive unisex products to consumers without unjustified impact on the overall price level. Price reductions resulting from unisex pricing should be passed on to consumers with the same level of fairness as price increases.”
Whatever a company’s philosophy, insurers are coping with big changes. The application of this ruling is immediate, but the verdict won’t be rendered for years to come.