Test Achats Case

8/16/2019 Test Achats Case

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European insurance and reinsurance federation, foundedin 1953

Represents around 95% of European insurance market bypremium income

Committed to creation of favourable regulatory andsupervisory framework for insurers at European andinternational level

About the CEA


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CEA members

34 national

associations:

26 EU memberstates

6 non-EU marketsCroatia, Switzerland,Iceland, Norway,Turkey, Liechtenstein

2 associatemembers

Serbia, San Marino

3 partners

Russia, Ukraine,Kosovo


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Contribution to the economy

More than 5 000 European (re)insurersrepresented by the CEA

Employingnearly 1 million

people

Generatingpremium

income ofover € 1 100bn

Investingalmost

€ 7 500bn


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Stakeholdersin the international environment

European institutionsInternational institutions

AMICE

EuropeanCommission

EuropeanParliament

Council of Ministers

EIOPA

ESRB

CFOForum

Insuranceindustrystakeholders

CROForum

PEIF

ICIS

RAB

Other stakeholders

Business Europe BEUCEFAMA

IAIS

OECD FSB

G-20

National insuranceassociations

Insurancecompanies

IMF

IASB

UNI-

Europa

EWL

Age Platform Europe


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The ECJ “Test -Achats” ruling - agenda

Insurance pricing

Gender in insurance pricingIs gender a legitimate factor in insurancepricing?

Are there other legitimate alternativefactors?Gender Directive 2004/113/ECThe ECJ Test-Achats rulingIts implications for insurers andconsumers, in theory and in practice

Age and disability in insurance pricing

Conclusions

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Private insurance differs from social securityVoluntary vs compulsoryMutualisation vs solidarityFunded method vs PAYG

Market freedom, entrepreneurship & competitiveness

Private insurance is based on the principle of fair riskpricing , considering relevant factors

Differentiation according to risk exposure is a preconditionto the functioning of private insurance

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Insurance pricing


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Is gender a legitimate factor in insurance pricing?No, where not relevant (home)Yes, where relevant, ie correlated with risks (eg motor, life, accident,health)

Gap in life expectancy in the EU: 6,5 yearsSome diseases are sex-specific (gender medicine)

Are there reasonable alternative factors ?Motor: years with driving license, mileage, claims background,

engine size, etc.Life / health: lifestyle (alcohol, smoking, nutrition, sport habits),income, place of residence, occupation, etc.Challenges:

Not obvious, not easily verifiable, not stable, intrusive

All things being equal, gender remains a relevant risk factor 8

Gender in insurance pricing (1)


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Gender Directive 2004/113/ECProhibition of gender-based differentiation in insurance pricing

(Art.5 §1)

MS option allowing such differentiation (Art.5 §2)

Article 5 - Actuarial factors1. Member States shall ensure that in all new contracts concluded after 21 December 2007

at the latest, the use of sex as a factor in the calculation of premiums and benefits for the purposes of insurance and related financial services shall not result in differences inindividuals' premiums and benefits.

2. Notwithstanding paragraph 1, Member States may decide before 21 December 2007 to permit proportionate differences in individuals' premiums and benefits where the use of

sex is a determining factor in the assessment of risk based on relevant and accurateactuarial and statistical data. The Member States concerned shall inform theCommission and ensure that accurate data relevant to the use of sex as a determiningactuarial factor are compiled, published and regularly updated. These Member Statesshall review their decision five years after 21 December 2007, taking into account theCommission report referred to in Article 16, and shall forward the results of this review tothe Commission.

Implementation by 21 December 2007 (27 MS opted out for life)



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ECJ Test-Achats ruling , 1 March 2011 Art.5 §2 invalid with effect from 21 Dec 2012

The ruling addresses the structure of the Gender Directive , but

leads to challenge the way private insurance works

Judgement in Case C-236/09 - Association belge desConsommateurs Test-Achats ASBL and Others v Conseil desministres:

“On those grounds, the Court (Grand Chamber) hereby rules:

Artic le 5(2) of Cou nc il Direct iv e 2004/113/EC of 13 Decem ber2004 im plement in g the pr in ciple of equal t reatment b etweenmen and wo men in the access to and su pp ly o f goo ds andservices is in valid w ith effect from 21 Decemb er 2012. “


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Implications for insurers Technical challenge for insurers to adapt (deadline)

Legal certainty needed asap

EC guidelines expected in Dec 2011

Ruling only applies to new contracts concluded for the 1 st time after 21 Dec

2012:

- ECJ’s intention and Gender Directive’s aim to prevent sudden readjustment ofthe market

- Parties’ rights and obligations fixed and exhausted at the time the contract isconcluded

- Insurers have relied/rely in good faith on Article 5(2)

- Consumers and businesses need a secure legal environment when committingthemselves


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General implications for consumersReduced competition, innovation and consumer choiceRisk inadequate pricing: risk of premium increase, withdrawal ofproducts (adverse selection and moral hazard)



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General examples of consequences for consumers Term life insurance

– Women live longer than men & pay less – Expected premium increase eg for a single young mother looking for a

term life insurance to secure her mortgage

Motor insurance – (Young) women have less driving offences and claims, and therefore

pay lower premiums – Unisex premiums may result in higher premiums for them

Annuities – Men may stop buying annuities and prefer banking/investment products

with no biometric risk coverage – Expected social impact on levels of retirement savings in the context of

financial pressure on state pension schemes



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National examplesBelgium

Motor third party liability (MTPL) insurance : the introduction of unisexrates resulted in 2008 in premium reductions of 3 – 4% for young men andpremium increases of 7 – 15% for young women

The UKMotor insurance : women aged 25 and under could see the cost of coverrise by up to 25%; men of same age costs could fall by up to 10% (based onan average motor premium of £1,682 for female aged 17-22 (AA PremiumIndex), it would mean an extra £420 a year) Annuities : men (and dependants) could see a 8% reduction in benefits,while those for women could only rise by 6%Term life insurance : expected rise of up to 35-50% in the cost of cover forwomen, while men could see a fall of 0-10%



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Age and disability in insurance pricing(1)

Draft Directive on age & disabilityRisk of spill-over effect

Similar structure as Gender Directive Article 2(7) :

Notwithstanding paragraph 2, in the provision of financial services, [Member States may provide that] proportionate differences in treatment on the grounds of age or disability shallnot be considered discrimination for the purposes of this Directive, if age or the healthcondition underlying the disability is a determining factor in the assessment of risk for theservice in question and this assessment is based on actuarial principles and relevant andreliable statistical data, or, [where no such data is available] for a certain health condition,on relevant and reliable medical knowledge.

Providers of financial services who decide to apply proportionate differences of treatmenton the grounds of age or disability shall provide information on the reasons justifying thosedifferences of treatment.“


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Age and disability in insurance pricing (2)

Draft Directive on age & disabilityLegitimate, relevant factors

Motor: claims frequency/ costs vary according to age groups

Health: medical expenses grow with age

Travel incl health cover: medical treatment costs grow with age

Life: mortality grows with age

A ban on the use of these factors would lead to the end of thecurrent insurance business model, to the detriment of

consumersNeed for absolute legal certainty on use of age and disability in riskassessment and insurance pricing


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Conclusions

Differentiation according to risk exposure is not unfair discrimination,but is a precondition for the functioning of private insurance

ECJ Test-Achats judgment raises key challenges :

Will the industry manage to adapt in time?

Which benefits for consumers, including for women? Economic and social

implications?

Current private insurance business model at stake?

Age and disability are relevant factors in insurance pricing

Need for absolute legal certainty


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CEA publications

CEA Annual Report

The use of gender in

insurance pricing

Financial education andawareness: European

insurance industryinitiatives

European Insurance inFigures

Briefing note: Insurancedistribution

Insurance DistributionChannels in Europe


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For more information

www.cea.eu

CEA aisbl Square de Mee ûs 29 B-1000 Brussels

Test Achats Case

Documents

Transcript of Test Achats Case