As discussed in our Spring 2011 e-zine, on 1 March 2011 the European Court of Justice (the "ECJ") delivered judgment in the Test-Achats case ruling that, with effect from 21 December 2012 (the "Effective Date"), Article 5(2) of Council Directive 2004/113/EC (the "Gender Directive") is invalid. 

Since this judgment, there has been considerable uncertainty and confusion within the insurance industry and among national regulators and legislators as to how the judgment will apply in practice. 

With the aim of facilitating compliance by Member States at a national level, the European Commission published its guidelines on the application of the Gender Directive to insurance in light of the judgment of the ECJ in Test-Achats (the "Guidelines").  The Guidelines are stated to be without prejudice to any future interpretation that the ECJ may give to Article 5 of the Gender Directive and the ECJ is not bound by the Guidelines. 

The Guidelines make the following key points in relation to the practical impact of the Test-Achats judgment for the insurance industry:

  • there is no longer any exception to the rule that the use of gender as an actuarial factor in the calculation of premiums and benefits by insurers must not result in differences in individual's premiums and benefits;
  • they provide guidance on the interpretation of the term "new contract" and seek to identify the types of contract to which the above rule applies; and
  • they identify various gender-related insurance practices which are still permissible.

The Gender Rule

The Guidelines state that as from the Effective Date, there are no possible exceptions to the application of the rule in Article 5(1).  Article 5(1) sets out that the use of gender as an actuarial factor in the calculation of premiums and benefits by insurers must not result in differences in individual's premiums and benefits (the "Gender Rule").  According to the Commission, Member States can no longer rely on the Article 5(2) exception, which previously allowed insurers to permit proportionate differences in individuals' premiums and benefits where the use of gender as a determining factor in the assessment of risks was based on relevant and accurate actuarial and statistical data. 

The Gender Rule only applies to "new contracts"

Article 5(1) provides that the Gender Rule only applies to "new contracts" concluded after 21 December 2007, a term which was left undefined in the Gender Directive.  The Guidelines emphasise the importance of maintaining uniform interpretation of the term throughout the EU and seek to provide assistance to Member States in this regard.  The Guidelines set out that the Gender Rule will apply whenever:

  • a contractual agreement requiring the expression of consent by all parties is made, including an amendment to an existing contract; and
  • the latest expression of consent by a party that is necessary for the conclusion of that agreement occurs as from the Effective Date. 

The Guidelines provide the following non-exhaustive list of examples of "new contracts":

  • contracts concluded for the first time as from the Effective Date, including where the offer was made prior to the Effective Date but accepted after the Effective Date; and
  • agreements between parties, concluded as from the Effective Date, to extend contracts concluded before the Effective Date which would otherwise have expired.

The Guidelines also provide the following non-exhaustive list of examples of situations which do not constitute a "new contract", ie, old contracts:

  • the automatic extension of a pre-existing contract if no notice is given by a certain deadline as a result of the terms of that pre-existing contract;
  • the adjustment of individual elements of an existing contract, such as premium changes, on the basis of predefined parameters, where the consent of the policy-holder is not required;
  • the taking out, by the policy holder, of top-up or follow-on policies whose terms were pre-agreed in contracts concluded before the Effective Date, where these policies are activated by a unilateral decision of the policy-holder; and
  • the mere transfer of an insurance portfolio from one insurer to another which should not change the status of the contracts included in that portfolio.

Permissible gender-related insurance practices

Importantly, the Guidelines point out that the Gender Rule does not prohibit the use of gender as a risk-rating factor in general. The use of gender as a risk-factor is allowed in the calculation of premiums and benefits at the aggregate level, as long as it does not lead to differentiation at an individual level. It therefore remains possible to collect, store and use gender status or gender-related information within those limits. 

For example, insurers can use gender status for the purposes of internal risk assessment; for monitoring their portfolio mix and aggregate pricing perspective; for pricing reinsurance products and insurers may target advertising and marketing at one gender to influence their portfolio mix. Further, given the physiological differences between the genders, insurers may also need to take gender into account in order to assess other risk factors such as health status or family history. 

In addition, the Commission is of the opinion that it remains possible for insurers to offer gender-specific insurance products or options within contracts to cover conditions which exclusively or primarily concern males or females. For example, this would include prostate cancer, or breast cancer but excludes pregnancy.

Finally, the Guidelines point out that the Test-Achats judgment only addresses the use of gender as a risk-rating factor and not any of the other factors used by insurers. However, it must be kept in mind that indirect discrimination is also prohibited. 

Indirect discrimination occurs where an apparently neutral risk factor puts persons of one gender at a particular disadvantage. Indirect discrimination can, however, be justified if the aim is legitimate and the means use to achieve it are appropriate and necessary. Therefore, the use of risk factors correlated with gender remains possible as long as they are true risk factors in their own right. 

For example, with regard to motor insurance, the size of a car engine would be a permissible risk factor even though more men than women drive cars with more powerful engines. Further, the Test-Achats judgment does not affect the use of other risk-rating factors, such as age and disability, which are currently not regulated at an EU level.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.