Insurers warned they might have to stop using gender to set premiums

As the European insurance industry waits for a judgement from the European Court of Justice on whether charging differential rates based on gender is fair under European law, the Association of British Insurers has told insurers to plan for a ‘worst case scenario’.

Rhys Collins, Head of African Operations for SSP, says South African insurers should also be watching this ruling carefully, despite the fact that it is a Eurocentric view. “Should such a ruling cause what is not an insignificant change in the UK and European Insurance markets, certain aspects of product, marketing and distribution management will have to change. Should this judgement swing in favour of gender equality, despite statistical evidence showing that certain genders are less risk than others in certain circumstances, insurers will have to carry the risk differential.

Pending the outcome there are three possible scenarios.

Collins says if the ruling is introduced retrospectively existing policies may be deemed to be illegal and insurers may be forced to cancel these and reissue on a gender neutral basis. “There is also the risk that lapsed policies may technically require refunds/additional payment, but we don’t feel this is likely.”

From a service level this could affect monthly transaction charge patterns if large volumes of policies share inception and renewal dates.

If the ruling is to take immediate effect insurers may need to switch some schemes off temporarily until decisions can be made on how to rate them. They may even need to switch off woman driver products completely. Any ‘quick fixes’ and interim measures will create premium queries as insurers internal systems may not match insurer developments and will potentially be impacted by this additional work

Service providers will have to take action outside the usual update cycles. “This will impact scheduled updates, new scheme builds and other quotes development work for a while as resource is diverted to emergency coding and supplement builds,” he says.

Finally if there is a transition period, three years has been suggested, insurers will be able to review their current underwriting rules and rates and implement changes where appropriate within standard updates.

“Life will continue as normal and requests will be coded for changes to schemes in line with usual update cycles,” says Collins.

The ruling will also have significant implications for brokers.

Once again if the ruling is introduced retrospectively, brokers may need to cancel and rebroke all live woman driver policies and/or policies that were based on gender rating as advised by the insurer.

If the ruling is to take immediate effect, interim solutions may generate more refers/decline quotes than usual as insurers may remove guarantees or products until product changes are made or choose to reissue previously invited renewal quotes.

Practically their monthly update may be received later than usual impacting renewal quotes. Brokers will need to load more frequent supplements to address Polaris scheme changes and delegated authority brokers will need to confirm requirements for rating their schemes.

Again, if there is a transition period the impact will be minimal and updates will be issued on a monthly basis as normal.

Collins concludes saying, “At this stage there are many unknowns, but this news underlines the importance of technology enabling insurers and brokers to be able to respond with agility and flexibility to changes in market forces, more specifically in this case, legislation .” A judgement is expected on 1 March.