SAIA supports the traditional insurance practice of differentiation in insurance premiums to the benefit of consumers

07 March 2011 SAIA

“The South African Insurance Association (SAIA) has taken note of the Court of Justice of the European Union recent ruling that taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination,” says Suzette Strydom, Legal Manager of the South African Insurance Association (SAIA).

The implementation of the ruling has been delayed to December 2012, which will give European insurance companies time to amend current processes to determine premiums and risk. This ruling follows directive 2004/113/EC that prohibits discrimination based on gender in the access to and support of goods and services.

“The premium of a short-term insurance policy is based on a risk profile and includes age, gender, security measures, item insured, the value of the item and claims history. In essence, the basics of determining an insurance premium are: the higher the risk, the higher the premium,” says Strydom.

The South African Constitution refers to the term unfair discrimination as opposed to some countries that only define the term discrimination. In South Africa, the Promotion of Equity and Prevention of Unfair Discrimination Act, 2000 prevents and prohibits unfair discrimination, harassment and hate speech. In order to defend an action of unfair discrimination, section 14 of this Act states that discrimination that reasonably and justifiably differentiates between persons according to objectively determinable criteria, intrinsic to the activity concerned, is a valid defence against a claim of unfair discrimination, adds Strydom.

The Consumer Protection Act (CPA) has a similar approach in section 8, namely, a prohibition on a supplier of goods or services against unfair discrimination on the basis of the Constitution or the Promotion of Equality and Prevention of Unfair Discrimination Act, states Strydom.

“The South African Insurance Association (SAIA) supports the South African position reflected in law which has been drafted to allow differentiation, resulting in benefits for consumers,” says Suzette Strydom, Legal Manager at SAIA.

Advocate Strydom further states: “In the South African insurance industry, the interpretation has always been, that in the event that an insurer can show with statistics, over a particular period of time, that the claim ratios confirm an increase in and an exposure to risk as a result of age, gender, location or other factors, the premiums will be determined accordingly. The differentiation in premiums is an actuarial science and as such not regarded as unfair discrimination.”

The motor insurance industry is highly competitive and various insurers have adopted an approach to allow consumers who are statistically a lower risk to pay lower premiums. In this regard, some insurers even offer a lower premium according to usage. Statistically, females have a higher life expectancy and lower accident ratios than men and accordingly, there is a differentiation in premiums.

Strydom explains that according to current statistics, younger drivers between the ages of 18 to 25, are three times more likely to cause an accident. It is unfair to expect pensioners, for example, to subsidise younger drivers resulting in an additional financial burden for pensioners.
The SAIA therefore believes that there is no need to amend current law as the South African law allows for differentiation that is to the consumers’ benefit based on determinable criteria.
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