UK Insurers prepare for G-Day, as Gender equality rules kick in.
1. Article 5 of Council Directive 2004/13/EC of the 13th December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services (“The Directive”) regulates the use of actuarial factors related to gender in the provision of insurance and other related financial services. Article 5 (1) provides that, for new contracts concluded after the 21st December 2007, the use of gender as an actuarial factor in the calculation of the premiums and benefits must not result in differences in individuals premiums and benefits (“The Unisex Rule”). Article 5 (2) provided for derogation from this rule by allowing member states to maintain proportionate differences in individuals premiums and benefits were the use of gender was a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data.
2. The European Court of Justice (“ECJ”) was asked to rule on a challenge from a Belgian Consumer Association asking whether the exemption in Article 5 (2) of the Directive was compatible with the prohibition under discrimination on the grounds of gender enshrined as a Fundamental Right of the European Union. In the case the ECJ ruled that exemption was invalid. It granted a transitional period of relief for implementation. The transitional period ends on the 21st December 2012. From then, it will be unlawful to use gender related factors for determining premiums and benefits under insurance policies. National Governments of member states who opted to apply Article 5 (2) of the 2004 Directive (of which the UK is one) are under an obligation to change domestic law so that with effect from no later than the 21st December 2012, it complies with the ECJ decision.
3. In December 2011 HM Treasury launched a consultation on the Government’s proposed implementation of the ECJ Judgment.
4. In January 2012 the European Commission published guidelines on the application of the Directive in light of the Judgment of the ECJ.
5. The Judgment was absolutely clear and certain as regards new contracts, but some guidelines and clarification appear to be required in respect of what actually constitutes a new contract where there is an existing relationship between the parties, as if so often the case when dealing with insurance renewals.
6. Paragraph 9 of the European Commission guideline states “The Directive does not define the concept of a “new contract”, nor does it contain any reference to national laws as regards the meaning to be applied to such terms. This concept should therefore be regarded, for the purposes of application of the Directive, as designating an autonomous concept of European Union Law which must be interpreted uniformly throughout the union. This uniform interpretation corresponds to the aim of the Directive in the insurance field, which is to implement the unisex rule, after the expiry of the transitional period. The concept of a “new contract” referred to in Article 5 (1) is essential for the practical implementation of this provision. Diverging interpretations of this concept based on national contract laws would create a risk of different transitional periods delaying the comprehensive application of the unisex rule and also of an uneven playing field for insurance companies. This would undermine the objective pursued by the Directive of comprehensively guaranteeing the equal treatment of women and men across member states in relation to individuals’ insurance premiums and benefits from the same date and expressed in its Article 5 (1).”
7. Paragraph 10 states “The implementation of Article 5 (1) requires a clear distinction between existing and new contractual arrangements. The distinction must meet the need for legal certainty and be based on criteria that avoids undue inference with existing rights and preserve the legitimate expectations of all parties. The approach is in line with the Directives objective of preventing a sudden readjustment of the market by restricting the application of the unisex rule only to new contracts.”
8. Paragraph 11 states “Accordingly, the unisex rule pursuant to Article 5 (1) shall apply whenever (a) a contractual agreement requiring the expression of consent by all parties is made, including an amendment to an existing contract and (b) the latest expression of consent by a party that is necessary for the conclusion of that agreement occurs as from the 21st December 2012.”
9. Paragraph 12 states that “Consequently the following should be considered as new contractual agreements having therefore to comply with the unisex rule;
(a) Contracts concluded for the first time as from the 21st December 2012.
Therefore, offers made before the 21st December 2012 but accepted as
from that date will need to comply with the unisex rule;
(b) Agreements between parties, concluded as from the 21st December
2012, to extend contracts concluded before that date which would
otherwise have expired.”
10. Paragraph 13 of the guidelines does however set out situations which should
not be considered as constituting a new contractual agreement. They are:-
“(a) The automatic extension of a pre-existing contract if no notice e.g. a
cancellation notice, is given by a certain deadline as a result of the
terms of that pre-existing contract;
(b) The adjustments made to individual elements of an existing contract,
such as premium changes, on the basis of predefined parameters
where the consent of the policyholder is not required;
(c) The taking out by the policyholder of top-up or follow-on policies
whose terms were pre-agreed in contracts concluded before the 21st
December 2012, where these policies are activated by a unilateral
decision of the policyholder;
(d) The mere transfer of an insurance portfolio from one insurer to
another which should not change the status of the contracts included
in that portfolio.”
11. Further to the consultation process of HM Treasury, the Government
produced a response in March 2012 on the issue of the definition of a “new
contract” the Government whilst understanding the desire for certainty on the
issues confirmed that it could not provide further clarity on the interpretation
of the Directive with any authority. The response stated “As there is no
definition of a new contract between the gender Directive, it will ultimately be
for the Courts to determine whether the definition used by member states is in
keeping with the Directive and the ECJ Judgment. Any further guidance
provided by Government would not necessarily align with decisions the
Courts may make in future and would therefore only serve to provide false
certainty to industry.”
12. The Government did however “acknowledge and agree with the European
Commission’s view that significant disparity in how member states
implement Judgment would not be beneficial and did recommend therefore
that the guidelines produced by the Commission may be considered useful in
helping to align interpretation of insurers across member states.”
13. The Government did not believe that there would be a significant problem in
the United Kingdom “Because national law in this area is broadly in line
with the interpretation suggested by the Commission.”
14. HM Treasury did acknowledge that some respondents noted that the
treatment of automatic extensions to an existing contract (tacit renewals) may
be one area where there is divergence.
15. Further in response the Government confirmed that it intended to implement
the ruling by repealing paragraph 22 of the Schedule 3 of the Equality Act
2010 which will remove from legalisation the exemption from the unisex
rule. This mirrored the exception in the gender Directive which had been
outlawed by the European Court of Justice in March 2011.