Court of Justice deems the use of gender as a risk factor in insurance contracts incompatible with European fundamental rights

On 1 March 2011, the European Court of Justice rendered its judgement in the Test-Achats case. In a landmark ruling, the Court bans the common practice in the life insurance market to apply gender differences in premiums and benefits based on underlying actuarial and statistical data. According to the Court, as of 21 December 2012, unisex premiums and benefits should be the one and only norm.

Directive 2004/113/EC aims to combat discrimination based on sex in access to and supply of goods and services. Article 5 of the Directive prohibits in principle the use of sex as a factor in calculating insurance premiums and benefits as of 21 December 2007. Yet the same article provided for an exception to this general rule. Member States could allow exceptions to the rule of unisex premiums and benefits in so far as the use of sex was a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data. By 21 December 2012, the Members States were to ascertain whether these exceptions were still justified. Belgium made use of this possibility to allow the continuous use of actuarial data based on sex in life insurance policies (third pillar).

The Court ruled that this exception in the Directive goes too far, since the Directive does not give any indication as to how long these differences could be maintained. The Court held that Member States that make use of the exception of Article 5 (e.g. Belgium) could consolidate the unequal treatment based on sex without any time limit. In this way, the general goal of equality between men and women would be eroded by the exception of Article 5. Therefore the Court concluded that this exception should be considered invalid as from 21 December 2012.

Although the Court's decision only deals with life insurances (third pillar), and occupational pension schemes (second pillar) were left out of the debate, judgement will most likely also have significant impact in the latter area. Further research will show whether, and how quickly, the second pillar will have to bear the scrutiny of gender neutrality. Several elements come to mind: gender-based mortality tables (MR / FR) used in the conversion of capital into annuities or vice versa, the calculation of vested reserves in defined benefit plans, etc.

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