The Right to Underwrite Gender

Title

The Right to Underwrite Gender

Subtitle

The Goods & Services Directive and the Politics of Insurance Pricing

Authors

Lisa Rebert & Ine Van Hoyweghen

Abstract

When does gender based differentiation in insurance practice constitute discrimination? By examining EU documents, insurance trade journals, presentations, joints responses, and recommendations from equality and consumer groups from 2004-2014, this article examines the challenge to traditional gender-based actuarial discrimination. In life insurance, gender is a primary factor used in actuarial discrimination regarding risk selection. Private life insurance has long been a tool of inclusion and exclusion via its process of risk selection and distributive mechanisms, which creates a series of questions relating to biological classification, difference, equality, discrimination, solidarity, and governance. The realm of insurance medicalises gender by treating it as a statistical factor in determining longevity,differential disease susceptibilities, and even treatment outcomes. The authors examinewhen actuarial discrimination based on a sex/gender system becomes discriminatory in the eyes of insurers, equality bodies, and ultimately the European courts. Specifically, this article covers the Goods & Services Directive (2004/113), commonly referred to as the ‘Gender Directive’, first adopted in 2004 and implemented by 2007. It follows the effects of the European Court of Justice (ECJ) ruling and ensuing European Commission guidelines from Case C- 236/09 Test-Achats (2011-2012) regarding gender-based risk-rating practices in private insurance pricing. The ECJ invalidated Article 5(2) of the Gender Directive per 21 December 2012, raising renewed questions of how gender should be used by insurers in their actuarial tables and underwriting assessments, especially when deciding whether to reject or accept applicants. It further contextualises this information in EU non-discrimination law and assesses trends of favouring lifestyle factors over biological traits.

Keywords

Discrimination, equality, EU, gender, insurance, law, risk, difference

Introduction

Since the unification of the insurance market in the 1990s, there has been a marked rise in the use of risk selection – the practice of differentiation between pools of applicants – to remain economically competitive. In turn, insurers have had to respond to increasing scrutiny and anxiety from consumers, lawmakers, and equality groups about these discriminatory practices. For example, the 2004 EU ‘Goods & Services Directive’ aimed to reduce gender gaps in the access to all goods and services like private insurance. While this Directive originally left a special opt-out in Article 5(2) that allowed insurers to set sex-based prices for men and women, the European Court of Justice (ECJ) struck down this legal exception in 2011. Following the ECJ ruling in the now famous ‘Test-Achats’ case (C-236/09), the European Commission (EC) set forth a series of guidelines on unisex pricing in private insurance per December 2012 in order to uphold the European Convention on Human Rights and Fundamental Freedoms (ECHR) of the Council of Europe and the Treaty on the Functioning of the European Union (Council of Europe, 1950, 2012).

Prior to the ECJ ruling in 2011, significant media attention focused on the possibility that the ruling might cause the price of car insurances to rise for everyone. Women’s insurance prices would rise to account for the higher accident rate of young, male drivers. Those in favour of the ECJ’s ruling believe that European women are offered less favourable conditions in private insurance schemes compared to men because of their longer average life expectancy. On the other hand, EU equality groups claim that gender, like race, is outside of individuals’ control. They seem willing to shift the focus onto lifestyle factors (smoking, alcohol consumption, stress, etc.) and other ‘legitimate’ factors in risk assessments. These examples highlight the axes of age, gender, and race at play in the use of medical statistics by insurers that affects women throughout their lives (e.g., young women drivers, maternal health, and elderly women's pensions). Accordingly, feminism provides us with a useful toolbox with which to further unpack these issues of gender, difference, biology, and classification.

This article critically assesses the ECJ rulings by delving into the discourses around the Gender Ruling in 2011 and its aftermath. Despite the fact that gender equality in underwriting is making gains under new unisex policies, our analyses suggests that it still relies on evidence-based medicine in a way that leaves the practices and tools of actuarial discrimination intact when rating insurance applicants. In turn, this works to medicalise the governance of gender and to obscure the power relations that engender such representations of gender. Gender, as a knowable, recognisable category, is increasingly underpinned by the intensified use of bio-scientific data in the provisioning of private financial services like insurance. We demonstrate how gender differences were primarily constructed as ‘sexual differences’ related to biology – although shifting towards lifestyle factors – across the interactions of three EU-level institutions: courts, insurance markets, and supra-national civil society equality bodies. This study thus shines light on the development of EU anti-discrimination legislation and its effects on markets and social policy. We aim to demonstrate how this ruling and its aftermath sheds light on possible future EU anti-discrimination legislation concerning insurers’ use of biology and/or lifestyle factors.

Research methods

We systematically analysed documents from three key stakeholder groups: EU bodies like the European Commission (EC) and the European Court of Justice (ECJ); supra-national civil society and equality organisations concerned with women’s rights like the European Women’s Lobby, AGE – The European Older People’s Platform (AGE), and the Belgian consumer group Test-Achats; and leading European insurance companies like the Association of British Insurers (ABI), Gen Re, Swiss Re, and the insurance industry lobby Insurance Europe (formerly CEA). Analysis focused on documents, press releases, presentations and other data from these groups from 2004-2014. In particular, we targeted crucial moments known as ‘Gender Forums’, which took place in Brussels in 2009, 2011, and 2014. Key documents included the joint responses – one filed by Insurance Europe on behalf of multiple insurers and the other jointly authored by AGE, EWL, and Test-Achats – prepared in the months before these gatherings. These Gender Forums, facilitated by the EC and ECJ in guiding the implementation of this ruling, shed insight into the discourses undergirding various lobbying efforts. Nvivo software was used to draw out relevant keywords and themes for analysis and discussion.

[INSERT FIGURE 1 HERE: Figure 1 ECJ actions since the passage of the Gender Directive]

While motor and life insurance products garnered the most public attention regarding this ruling, this article focuses on the issue of gender and life insurance. Primacy is given to life insurance for several reasons. First, using gender – in this case someone’s biological sex – in life insurance risk rating is a traditional and widespread industry practice influencing pricing, contractual conditions, and additional checks. This highlights how insurance practices are largely based on medico-actuary statistics and their gender specific approach to disease incidence, mortality, and morbidity. Second, focusing on life insurance, and in turn, even lesser known products like annuities, helps to highlight the intersectional elements at play. Both motor and life insurance animate crucial intersectional dynamics of age and gender in insurance rating practices, which create differential pricing for women and men at different stages of their lives. Lastly, honing in on life insurance helps illuminate how, nowadays, people often need to supplement social pension schemes with private health, life, and annuity products formerly guaranteed by the state. This lens highlights the language and ideological divide – ‘solidarity’ vs. ‘subsidy’ – between different stakeholder groups when expanding economic rights to social rights.

Theoretical framework

This work situates itself in feminist traditions of recognising the power relations involved in defining, classifying, distinguishing, constraining, and enabling different types of bodies. By examining the ‘Woman question’ in insurance, this article highlights the practices of how differences are given decisive meaning when filling out an insurance application. Examining the implementation of unisex insurance guidelines using feminist theory, especially sex-gender systems, helps examine how gender operates as a productive technology that enables and constrains female subjects. Originally the sex-gender system was predicated on the biological difference between men and women (sex) and the social constructions and representations of those biological differences (gender). More recent feminist scholarship has shifted from theorising what gender is to what gender does, what it enables, and as a mechanism that produces (Franklin, Lury, & Stacey, 2000, p. 7). Instead of recounting the robust history of feminist debates about gender systems, we highlight a few seminal texts from Teresa De Lauretis and Judith Butler to demonstrate the value of using feminist theory when exploring the governance of gender in EU insurance pricing.

Gender, De Lauretis states, is a representational system of meanings predicated on the conceptual dichotomy of two biological sexes, and not (biological) sex itself. Here, gender represent a relation between individuals and a group, category, or class, and is inherently social in its representation (De Lauretis, 1987, pp. 4–5). For Butler and De Lauretis, sexed bodies never exist outside social meaning and how we understand gender shapes how we understand sex and vice versa (Butler, 1999, p. 139). As De Lauretis elaborates, ‘Woman’ and similar representations engendered by the sex-gender system constrain our abilities to analyse difference between and within women. Sex-gender systems can work to obscure or confuse the ‘Woman’ as representation of all gender difference for real-life women; the image of the group stands in for the realities of the individual. The feminist subject is aware of the twofold pull between the institution of femininity and the reality of women, which for De Lauretis opens up a space for theorising the differences among women.

Citing Foucault in her book The Technologies of Gender, De Lauretis discusses the notion of a ‘technology of sex’ whose techniques involve the elaboration of discourses, classifications, measurements, and evaluations that are implemented through medicine, economics, and other institutions. Butler, like De Lauretis, thinks the generative technologies of gender are critical in constituting individuals as subjects. Butler focuses on sex assignment (in her case at the moment of birth, in ours filling out an insurance application) and the oppressive forces of classification: sex classification is never merely descriptive, but has a normative element that reflects evaluative claims by those in power (Butler, 1993, pp. 28–29). Feminists should examine and uncover ways in which social construction and certain acts that constitute sex shape our understandings of sexed bodies, what kinds of meanings bodies acquire. Doing so enables feminists to identify how sexed bodies are socially constructed and opens up a space to resist such constructions.

Empirical overview

Contextualising the Gender Ruling

European gender equality law originates in the principle of equal pay enshrined in Article 119 of the Treaty of Rome. At the time, the principle was adopted to ensure free competition by preventing anti-competitive practices linked to salary disparities and not as an explicit means to guarantee civil liberties or human rights (Masse-Dessen, 2011). Until recently, respecting the principle of equality was the exclusive prerogative of the workplace. The progress of gender case law and conventions since the Treaty of Rome, and especially after the passage of the Treaty of Lisbon, has shifted from ensuring equal economic rights to the inclusion and guarantee of social rights for women and others.

[INSERT FIGURE 2 HERE: Figure 2 Development of EU non-discrimination legislation]

Many legal scholars note that EU gender equality law is unique because it combines non-discrimination and proactive equality, thus focusing on ensuring group rights rather than compensating for an individual disability. It is due to this dual quality that legal scholars argue that EU gender equality law has inspired wider approaches to equality law in Europe (Masse-Dessen, 2011, p. 7).

ECJ: equal treatment for all consumers

At the time of the ECJ’s ruling, all 27 EU countries permitted the use of sex for risk-rating in some insurance products given the legal derogation allowed for by Article 5(2) (See Table 1). From the ECJ’s perspective, the decision to abolish some of these practices through contract law stands as an important milestone for gender equality per the Charter of the Fundamental Rights of the European Union, rights enshrined by the European Convention on Human Rights, and the case law upon which they stand (Council of Europe, 1950, 2012). At the ruling in March 2011, EU Justice Commissioner Vivienne Reding stated: ‘Following today’s judgment, it is now clear that an insurance company must not distinguish between women and men; all customers must be treated equally. This is a matter of respect for fundamental rights. It is now becoming a matter of good business practice’ (The Court of Justice of the European Union, 2011, p. 2). In other words, not all women and men will pay the same price for productslike motor insurance, but the rate should be based on an individual’s driving behaviour. Here, this affirmation of gender rights, and fundamental rights generally, is also positioned as good business practice.

Table 1 2004 Gender Directive: concerning actuarial factors

Article 5(1) / 'Member States shall ensure that in […] 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.'
Article 5(2) / 'Notwithstanding paragraph one, 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 [...].'

(Council of Europe, 2004)

As elaborated below, the ECJ ruling and subsequent actions have banned a form of indirect discrimination related to private insurance practices, namely using life expectancy statistics to compile a composite image of a group which stands in place of rating individual female applicant’s risk. Given the complexity of the ruling and legal language of the Articles, the EC undertook follow-up steps, engaging a range of civil society and insurance stakeholders to formulate feasible guidelines. Most recently in 2014, the EC has undertaken a period of evaluation with insurers and equality bodies (AGE, 2014; Insurance Europe, 2014; Leroy, 2014). Most of the research presented in this section, however, focuses on the guidelines for implementation released by the EC in December 2012. These clarifications affirm the Court’s ruling and shed light into how unisex insurance premiums should be applied. The ECJ gave Member States one year to close the derogation and comply with eliminating the gender specific opt-out for insurers.

Given ambiguities in the 2011 ruling, several clarifications were announced in December 2012 outlining the EC’s guidelines for implementing unisex insurance pricing, including: aligning the application of equal treatment across all Member States, defining new contracts parameters, excluding the application of this ruling to the use of age and disability in insurance, and a commitment to further monitor implementation. Importantly for our research, the 2012 guidelines clarify that the continued existence of some gender-related practices in insurance are circumstantially permitted. Specifically, it does not outright forbid the use of gender in underwriting; it merely ensures that pricing cannot solely be based on gender where it is used as the main risk factor to justify differences between individual’s premiums. This is noteworthy because it does not fundamentally change the way underwriters use gender in relation to risk; it just minimises its potential causal effect, thereby affirming Article 5(1) while rendering the derogation under Article 5(2) illegal.

Table 2 EC specifications: permitting the continued existence of some gender-related insurance practices

1. Calculation of technical provisions
2. Pricing of reinsurance products so as not to produce gender differentiation at the individual level (emphasis added)
3. Gender targeted marketing and advertising
4. Use of differentiation factors such as family history of breast cancer or waist to hip ratio
5. Gender-specific applications and medical tests and their interpretation in the underwriting their risk

(European Commission, 2012)

Hailed as a victory by rights advocates for affirming fundamental rights and equal treatment, the above demonstrates that the ECJ’s ruling is rather nuanced in its treatment of ‘gender’ in insurance practices. The original ruling and clarifications in 2012 did not create a scenario of ‘insurance without selection’, instead it ensured that insurance pricing is based on a heterogeneity of factors, some of which fall under the control of the individual (e.g., smoking) and others that do not (e.g., one’s gender and the gender specific links between smoking and cardiovascular diseases). As such, the ECJ has tried to encourage innovation in the insurance through the development of alternate risk factors that provide viable market solutions which align insurance pricing more closely with one’s personal risk (aka ‘personalisation of risk’).To ensure proper implementation, another Gender Forum was held after a period of review in September 2014.

Insurance practices: economic fairness

Insurers generally view themselves as having a right to underwrite and use actuarial risk assessment, including gender, to ensure the efficient functioning of private insurance markets. Insurers define underwriting as the identification of existing diseases in an individual and the risks factors for future disease development, and pricing for this (Turner, 2011, p. 8). To achieve the economic principle of ‘actuarial fairness’, insurers view the use of gender in risk assessment as equality because it pools similar risks. Actuarial fairness mandates that those insured should get out, on average, what they pay in, minus reasonable administration costs. Oxera Consulting LLP, hired on behalf of Insurance Europe, stated: ‘The policy debate around the use of gender in insurance pricing often appears to be primarily concerned about “equal treatment” of men and women—irrespective of the economic efficiency properties […] From an economic perspective, however, the use of gender-based pricing does produce “fair” treatment since the gender that pays higher premiums also expects to receive higher benefits’ (Oxera, 2010, p. i). Thus, insurers have argued compliance with the Gender Directive because they apply actuarial fairness as the measure of equality.