European Court of Justice ruling means burdens for insurance industry and high consumer costs

Following the Court’s own principle that the Treaties cannot be strictly interpreted but taking into account the state of integration and its objectives, it has enabled the Community to expand its competences. It is noteworthy that the Treaties as well as secondary EU legislation has been amended to incorporate ECJ’s rulings. The present case is not an exception, but another example of the ECJ interference in member states legal systems, and overriding national rules.


The European Court of Justice recently delivered its ruling in the Test-Achats case (C-236/09) concerning the validity of Article 5(2) of a Council Directive implementing the principle of equal treatment between men and women in the access to and supply of goods and services. The reference has been made by the Belgian Constitutional Court in proceedings brought by the Association belge des Consommateurs Test-Achats ASBL, against the Belgian Council of Ministers for annulment of the law which transposes that Directive. Belgian Law makes use of Article 5 (2) derogation for life insurances, which according to the applicants is contrary to the principle of equality between men and women. Consequently, the Belgian Constitutional Court asked the ECJ whether taking the sex of the insured person into account as a risk factor on the formulation of private insurance contracts is compatible with the principle of equal treatment for men and women. The ECJ ruled that insurance companies cannot use gender as a risk factor in insurance contracts, as it held that the derogation is invalid.

The 2004 Council Directive prohibits direct and indirect discrimination based on sex in access to and supply of goods and services. Article 5 (1) of the Directive reads “Member States shall ensure that in all new contracts concluded after 21 December 2007 at the latest, 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.” Hence, in principle, the Directive forbids the use of gender as a factor in the calculation of insurance premiums. Nevertheless, Member States have the right to derogate from the principle of equal treatment with regard to insurance contracts. Article 5 (2) provides “Notwithstanding paragraph 1, 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.” Member States were, therefore, allowed, from 21 December 2007, to derogate from the general rule of unisex premiums and benefits, providing that they can “ensure that accurate data relevant to the use of sex as a determining actuarial factor are compiled, published and regularly updated.” Under this provision, Member States are required to review their decision to make use of the derogation five years after 21 December 2007, thus on 21 December 2012.

All Member States have applied this derogation for insurers. Consequently, the insurance industry has been benefiting from this exemption, being allowed to use statistics to set different premium rates for men and women.

The ECJ recalled that “Equality between men and women is a fundamental principle of the European Union” and that “Articles 21 and 23 of the Charter of Fundamental Rights of the European Union … prohibit any discrimination on grounds of sex and require equality between men and women to be ensured in all areas.” Hence, the ECJ has assessed the validity of Article 5(2) in the light of these provisions.

The Directive has not provided any expiration date for the derogation. According to the Court “there is a risk that EU law may permit the derogation from the equal treatment of men and women, provided for in Article 5(2) of Directive 2004/113, to persist indefinitely.

The Court held that “Such a provision, which enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits, works against the achievement of the objective of equal treatment between men and women, which is the purpose of Directive 2004/113, and is incompatible with Articles 21 and 23 of the Charter.” As a result, the Court ruled “Article 5(2) of Council Directive 2004/113/EC of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services is invalid with effect from 21 December 2012.” Hence, from 2012, insurers would be no longer able to take a person’s gender into account when pricing insurance. There can be, therefore, no difference in insurance premiums and benefits for women and men.

Taking into account that all member states allowed insurers to use sex as a risk-rating factor for life insurance and annuities, obviously, such ruling will have an impact in the insurance industry, and obviously on the consumer. As the Association of British Insurers stressed “insurers will have to make large scale changes including amending all affected policy documentation; contacting customers with new information; updating and changing computer systems; ensuring insurance brokers have the right pricing information; adjusting insurance renewals and updating all sales material.” Obviously, this would entail further costs for the industry.

On the other hand, as Michaela Koller, directorgeneral of the European insurance and reinsurance federation (CEA), said the ruling “is bad news for insurance customers.” The Association of British Insurers pointed out that premiums paid by under 25 women for motor insurance could increase by 25% and women life insurance could increase by 20%. According to Maggie Craig, ABI’s Acting Director General “The judgment ignores the fact that taking a person’s gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance.

The EU Justice Commissioner Viviane Reding stressed that the ruling “underlines the power and importance of our Charter of Fundamental Rights.” It is important to recall that the UK has a Protocol on the Application of the Charter, which David Miliband has explained to European Scrutiny Committee is not an opt out from the Charter but “it is a statement of how the Charter provisions will apply in the UK.” Moreover, he said “the Charter provides no greater rights than are already provided for in UK law, and that nothing in the Charter extends the ability of any court to strike down UK law”. This Protocol states that the UK courts or the Court of Justice may not declare UK law incompatible with the Charter. However, the preamble to the Protocol states “(…) that this Protocol is without prejudice to other obligations devolving upon … the United Kingdom under the Treaty on European Union, the Treaty on the Functioning of the European Union, and Union law generally.” So, the Protocol will not prevent the UK Courts of being bound by the ECJ interpretations of EU law measures based on the Charter. The UK courts are compelled to follow an ECJ ruling interpreting a measure of EU law in a case arising in another Member State. The UK will be bound by the Court of Justice rulings if it interprets Union law as implemented in other Member States in conditions where the same law is also implemented in the UK. The UK courts will not be able to ignore ECJ rulings when considering the interpretation and validity of UK law implementing Union law.

The present case is an example of the ECJ interpreting and assessing the validity of EU law according to the Charter. The ECJ has assessed the validity of Article 5(2) in the light of the Charter provisions, and ruled that the provisions is invalid, hence any Member State’s court has to consider this provision invalid. The Commission is very likely to put forward a proposal amending the directive “to rectify the situation.”

The UK courts are bound by this ruling, for the reason of the UK obligations under the Treaties and “Union law generally.” For this reason, the ESC said that “the only way of ensuring that the Charter does not affect UK law in any way is to make clear (…) that the Protocol takes effect “notwithstanding the Treaties or Union law generally.” However, such a provision has not been inserted in the Protocol, with serious consequences for the UK.

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