Unisex premiums for driving insurance? EU crazy?

The recent judgement of the European Court of Justice (ECJ) dealing with the problem of sex discrimination as it related to actuarial risk calculations in insurance contracts (1) was a Belgian case where the ECJ had to interpret Article 5 of Directive 2004/113 (2). The Directive itself emanated from the Council of the European Union.

Article 5 states that:

"1. 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 in individuals’ premiums and benefits."

but then goes on to say that:

"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 accurate actuarial and statistical data."

In the case the Belgians had enacted a derogation under para 2 of article 5 by a provision made on 10th May 2007. This was in time for the purposes of para 2 of Article 5. The issue was whether para 2 of Article 5 should be interpreted to mean that:

1. once in place that derogation stayed in place; or
2. that any derogation was valid only until 21 December 2007.

The ECJ decided that the correct interpretation of para 2 of Article 5 was that it was a transitional provision not a provision granting a country rights to create a National exclusion from the sex discrimination provision created by para 1 of Article 5. Therefore the Belgian provision and the use of sex as a determining factor in the assessment of actuarial risk generally was not lawful after 21 December 2007.

In response to the argument that the cost of risk should be borne by those creating the risk the ECJ responded that:

"the principle of equal treatment requires that comparable situations must not be treated differently, and different situations must not be treated in the same way, unless such treatment is objectively justified (see Case C‑127/07 Arcelor Atlantique et Lorraine and Others [2008] ECR I‑9895, paragraph 23)

... In that regard, it should be pointed out that the comparability of situations must be assessed in the light of the subject-matter and purpose of the EU measure which makes the distinction in question (see, to that effect, Arcelor Atlantique et Lorraine and Others, paragraph 26). In the present case, that distinction is made by Article 5(2) of Directive 2004/113." (3)

But of course, after 21 December 2007 provisions made under Article 5(2) of Directive 2004/113 did not operate on the interpretation of Article 5(2) provided by the Court. Thus the Court is in effect saying that the European Council noted the concern, permitted it for a transitional period and now the clock has run out on that distinction. If the European Council did not mean to do this then they should go back and fix their sloppy drafting. If they did mean to do this then they have accepted that risk is not to be calculated actuarially by reference to the sex of population groups.

For the latter argument to run we must recognise that the problem is that actuarial calculations operate on aggregate populations whilst legal rights generally operate to protect individuals. The effect of this decision is that the safe young male driver benefits from the protection of his individual right not to be aggregated into the boy racer population whilst the safe young female driver loses the advantage that she derives from being aggregated into the low risk pool of young female drivers. In essence we should be treated as individuals not as members of arbitrary groups even if such groupings do provide a genuine actuarial basis for calculating our future risk profile.

From an actuarial perspective, in order to predict the future at a population level use of aggregate data from previous populations is a powerful way to accurately assess risk for the present population. This is because individual young drivers usually lack a significant previous driving history.

This approach does not sit well with the forced implementation of an individual right to absolute equality. Particularly since an individual right to absolute equality is not the same as a requirement that comparable situations must not be treated differently. It all turns on what we can fairly regard as comparable.

From the perspective of the EU, if the anathema of sex discrimination is driving the legislation then the Council will sit tight. If not it will need to act to amend the law. Time will disclose their underlying motive.

From the perspective of the insurance company and the public, facing the practical reality of this decision, the fact remains that the principle that the risk should fall on those who create it still makes a great deal of sense.

To square this circle we must appreciate that the fact of being male does not imply certainty or even propensity of increased risk. It does imply membership of a population that does carry higher risk. Should the individual safe male driver be punished for being part of such a population irrespective of his actual personal risk profile? If not then we must find a way to personalise risk assessment beyond crude sex based population groupings.

One possible solution to the problem of letting the cost fall upon those who create the risk may be for there to be large insurance premiums for young drivers who do suffer claims. Despite this being post hoc it may be enough to force the more dangerous youthful driver off the road or onto their parents insurance policy.

Footnotes

(1) Association belge des Consommateurs Test-Achats ASBL, Yann van Vugt, Charles Basselier v Conseil des ministres Case C‑236/09 decided 1 March 2011

(2) Implementing the principle of equal treatment between men and women in the access to and supply of goods and service. EU Directive 2004/113

(3) at para 28 - 29 Case C‑236/09 (vide supra)