Early Christmas gift for insured women: protection from discrimination. But does anybody want it?
The Act will not affect “old” policies and changes agreed prior thereto. It will, however, provide women with “protection from discrimination”, which – in an absurd twist – they will have to pay for. Insurance companies, on the other hand, will face complications concerning insurance policy administration.
Last year, Article 5(2) of EU Directive 2004/113/EC, commonly known as the Gender Directive, which implemented the principle of equal treatment of men and women with regard to the access and supply of goods and services, was declared invalid by the European Court of Justice. The repealed Article allowed Member States “to permit proportionate differences in individuals’ premiums and benefits where the use of sex is a determining factor in the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 (gender differences in life expectancy and causes of death, etc.)”. For now, I shall set aside the judgment itself, as well as the reasoning of the judges. Instead, let us focus on what the court’s decision means for insurance companies and their clients.
The decision made the opt-out invalid with effect from 21 December 2012. As a result, for all new policies after that date premiums must be determined pursuant to “unisex” rules. This is likely to result in higher premiums for women, plus some complications involving insurance policy administration.
Raise my premiums
At the end of June 2012, the Czech government passed the draft amendment to the Insurance Policy Act, the Insurance Industry Act, and the Additional Pension Insurance Act. The change involving additional pension insurance is basically a formality since, given the pending transformation of pension funds, new additional pension insurance contracts cannot be concluded after November 2012.
The other new aspects, however, are by no means mere formalities. Under the Insurance Policy Act, gender and other aspects which conflict with equal treatment principles cannot be factored in by insurance companies when setting insurance pricing or indemnity (the current exemption which allows gender to be factored in, as established in Article 5(2) of the Gender Directive, will be repealed). If the insurer does not act in line with the law, the female policy holder will have the right to seek redress in accordance with the legislation. This basically means that she will have the right to ask for a higher premium, which clearly illustrates the absurd nature of the new rule. For insurance companies, a violation of the unisex rules will be considered an administrative offence and will expose them to a corresponding penalty.
What is a “new policy”?
The key issue, primarily with regard to life insurance (where most products are by definition long-term products), is how the new legislation will impact existing policies. The justification report indicates that the Ministry of Finance (the authority that drafted the amendment) is trying as much as possible to reflect the instructions issued by the European Commission in connection with the interpretation of the term “new policy”. In my opinion, however, the wording of the draft amendment could be more explicit in certain aspects. For instance, where the terms and conditions of an insurance policy are modified, the latest version of the transitional provisions even fails to indicate whether the unisex rules are to apply to the new provisions that are added to the policy or whether an overall “recalculation” is to be made. I believe that the second scenario would constitute illegal retroactivity, since it would violate the provisions agreed under the current legislation.
Any agreement entered into after 21 December 2012 to amend an insurance policy or a similar agreement to extend the term of an insurance policy which would otherwise expire shall be considered a “new insurance policy”. On the other hand, policies subject to automatic renewal (where the policy continues to be in force and effect unless either party takes action to terminate it) shall not be deemed a “new insurance policy”. The Commission’s instructions indicate that “automatic” changes or modifications to the individual components of existing policies which are not subject to the insured party’s consent (such as inflation clauses in capital life insurance policies) and the “activation” of policy components agreed in advance shall not constitute a “new policy”.
In addition to reviewing and assessing whether or not a particular clause constitutes a new policy (and the associated calculation of premiums), insurance companies are about to face another difficult task: how to determine technical reserves accurately. Although premiums are subject to the “unisex rules”, gender can be factored in when creating technical reserves or entering into reinsurance policies. Hence, insurance companies will be able to continue to collect and use data on one’s gender.
Women who wish to avoid the unwanted “good” resulting from the restricted discrimination should enter into an “old” insurance policy before 21 December 2012 (especially if they have already been considering it) or, if they already have one, they should agree with their insurer in time on the changes that will allow the agreement to continue with minimal adverse effects.
Lastly, it occurred to me that the date the amendment is to take effect may be symbolic. According to the Mayan calendar, 21 December 2012 will be the end of days. But even if it turns out that the end is not nigh and that we all (the amendment included) live to see another Christmas, thanks to the introduction of “non-discrimination at all costs” a bit of common sense will certainly vanish from this world.