Wednesday, 2 March 2011

Insurance premiums and Euro ideology

It is not often that men come out on the right side of anti-discrimination laws, but the slavish adherence of the European Court of Justice to a flawed principle seems to have produced exactly that result. I am, of course, talking about the recent decision that insurance companies are not allowed to discriminate between men and women purely on the grounds of gender when setting premiums or paying benefits.

The judgment itself (here) is clear. Where the position of men and women is comparable they must be treated the same. Where their positions are not comparable they may be treated differently. Who decides when their positions are and are not comparable? Well, the institutions of the EU of course and they have decreed that the situations of men and women are comparable when it comes to setting insurance premiums and calculating benefits payable under a policy.

In some respects this is patently absurd. Women are at greater risk of thefts in the street, (for example, handbags are easier to snatch than wallets in jackets) young men are at greater risk of crashing a car, men are at greater risk of dying younger, men are at greater risk of injury around the house (they climb on chairs to fiddle with electric fittings whereas women climb on chairs to scream "eek" at the sight of a mouse). These disparate levels of risk exist between the sexes but it is not their gender that causes the disparity it is their behaviour and different patterns of behaviour present different risks of an insurance policy being called upon. Because, generally speaking, men behave differently from women men present a greater risk for some types of insurance and a lower risk for others.

Throughout the world these self-evident facts have conventionally been reflected by higher premiums being payable by those most likely to present a claim. There are two aspects to this because insurance operates in two ways. On the one hand, some insurance exists primarily to pay the policyholder a defined sum in the event of certain things happening; for example you can take out insurance that pays you a lump sum in the event that you break a leg or suffer a heart attack, or you can insure the contents of your home so that you receive some money if you are burgled and your stuff is nicked. The only beneficiary of such a policy is the policyholder himself (leaving aside the right to nominate a different beneficiary but there are limits to when and how that can be done). On the other hand some insurance exists primarily to provide protection to third parties against damage done by the policyholder. Lawyers, architects, accountants and others have to carry insurance so that anyone suffering due to their negligence can be compensated; similarly car drivers take out insurance not just to compensate them in case a crash occurs but also to ensure that innocent third parties can be compensated. Strictly speaking third parties are not entitled to claim against these indemnity policies, instead the policyholder is liable to pay compenation and the insurance company provides the funds from which he pays it; although the reality is that the insurance is for the benefit of the third parties.

Whether insurance is primarily for the benefit of the policyholder or third parties, it involves shifting risk from one person (or group) to another. If you have no household contents insurance the removal of your goodies by little Johnny Toerag causes you a loss and you have to dip into your own pocket to replace the missing things, the risk is yours alone. By insuring against burglary that risk is spread among all policyholders. Equally, negligence by an architect might cause millions of pounds of loss which will fall initially on the owner of the building; the owner can sue the architect but will he have the money to pay? Perhaps not, so he has professional indemnity insurance to ensure there is a fund from which his "victim" can be compensated. In that case risk passes from the owner to the architect to all those who have paid premiums into the relevant fund.

There is no single principle by which the fairness of the spread of risk can be assessed but the conventional approach is to charge higher premiums to those who are more likely to make a claim and lower premiums to low risk customers; in addition the greater the size of any potential claim the greater the premium. Different people, and different insurers, can take widely divergent views about how premiums should be weighted. Some might think it fair for everyone to pay the same premium, or for premiums to be graded according to the income of each policyholder, or to vary according to the area in which the policyholder lives, or according to his age or his occupation. Arguments can be made for each of these factors to be given particular weight in certain situations. What is considered fair is a matter of opinion and opinions necessarily vary.

I have read a lot of comment in the last few days about the judgment of the ECJ being unfair to young women drivers who, apparently, are much less likely to make a claim on their motor insurance than young men of the same age. It certainly appears to be the case that insurers will not be able to charge young men higher motor premiums than young women because that would involve unlawful discrimination on the basis of gender. I find this a slightly confusing concept. There is a reason why young men's premiums are higher - it is because, as a class, they are more likely to make claims. Not every one of them is a menace, but sufficient are to make them a risky group - not by way of anecdote but by way of hard evidence about the number and type of incidents in which they are involved. That is fact, that is reality. For reality to be cast aside in favour of a political ideal strikes me as highly unappealing.

Having said that, all weighting of insurance premiums requires judgments to be made about what is and is not fair. When I last had a big car and its insurance was due for renewal I obtained quotes varying between about £350 and just under £2,000. Same car, same location, same driver with decades of experience and not as much as a speeding ticket, yet one insurer assessed the risk I posed as requiring a premium five times higher than another. No doubt each felt they were chrging what was fair in the circumstances.

We shouldn't get too uptight about car insurance. Maybe premiums will go up substantially for young women, maybe they will fall a bit for young men, maybe they will rise for older people to allow premiums for the young to find a level between the current male and female level. Whatever happens there will continue to be wide differences between insurance companies' charges.

More troubling is the illustration given by the recent ECJ case of the consequences of pushing ideology into areas that are none of its concern. I have no problem with the concept of men and women being treated equally by the law, but I find it ludicrous that the law requires anyone to pretend that differences that actually exist as a matter of fact between men and women do not exist. There might be a simple way to avoid this absurdity. It arises only because the EU has decreed that the position of men and women is comparable so far as insurance premiums are concerned. As a matter of fact that is simply not the case, at least it is not the case when it comes to motoring premiums. The EU could, were it so minded, allow insurers to charge men and women different premiums where there is clear evidence that men present a higher risk than women or vice versa. That, indeed, was the position until it was struck down by the ECJ because it was inconsistent with another provision of EU law.

If we have to have EU law (and the sooner we don't, the better) it should at least try to reflect reality. I doubt that it can ever do so to a sufficient degree to gain public support because it is systemically ideological rather than practical. It is not just Middle Eastern despots who can only bully their subjects for so long before they are ousted.


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Woman on a Raft said...

I'm trying to find out if we DO have to have the Eurolaw. It has been pointed out that we had an opt-out from the Charter of Fundamental Rights under protocol 7 of the Lisbon treaty, although it is far from clear (to me) what exactly we are opting out of.

My reading is that the Equalities Act 2010 calls most of this part of the Charter in to English law, rendering the opt-out ineffective, but I'd be interested to know what you think.

Rosalind English a 1 Crown Office Row gives an opinion.

In the meantime, the Campaign for an Independent Britain is trying to get some genteel meetings going with a view to getting a referendum on in or out.

Pogo said...

Also of concern is the way the ruling might apply to annuity rates. At present men receive a better rate than women - because they statistically don't live as long and thus won't draw a pension as long. One can only assume that should "harmonisation" be forced upon the pension industry that men will lose out - unlike car insurance, where women will lose out.

Totally ludicrous.

TheFatBigot said...

Mrs Raft, I'm not sure I could be of much use without a day spent researching the matter. Euro law is not my thing, I deal in real law.

I also deal in real politics and defying the EU is not something our current political masters seem very keen to try. Whether or not there is an argument against the UK being bound by this ruling, were it ever to get to the EU's so-called courts we can be sure of the result. Expansion of the EU empire is always the result.

Mr Pogo, I fear the decision might also apply to annuities although there is one argument against, about which I have offered my views to the world in the conventional way.

Barnacle Bill said...

Mr. FB I loved that real law point you raised!
Unfortunately we are increasingly subject to these Eurogallic laws.

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