Gender ruling affects pensions

Insurance premiums will no longer be dictated based on gender after a March 2 ruling by the European Court of Justice (ECJ), which critics warn could cause the costs of insurance products to rise and negatively impact pension reform.

The ruling, which requires all EU members to ban classifying insurance clients based on gender by Dec. 21, 2012, found calculating premiums and pension annuities based on gender violates the European Union's Charter of Fundamental Rights. A directive passed in 2004 said member states are not allowed to make legislation that differentiates between males and females, the sole exception being finance institutions, which were allowed to use statistics-backed data regarding gender trends to calculate premiums and annuities.

The ruling is particularly salient to the Czech Republic, where the government is trying to change the pension system to include an option for workers to divert part of their social security payments into private funds. Currently, the annuities those funds pay out are less for women, who are statistically shown to live longer. However, once the requirements of the ECJ's ruling are implemented, that differentiation will no longer exist, and what that means for pensioners depends on who you ask.

"Women invest the same amount of money into their pension funds, but they can draw less money every month compared to men," said Anne-Sophie Parent, secretary general of the AGE Platform Europe, one of the lobby groups that has worked for this reform for almost 10 years. "That means they have a lower purchasing power, and the income gap increases over time."

But it's more likely private pension funds will decrease payments for men to meet those currently paid to women, according to Janina Clark, head of communications at CEA, the European insurance and re-insurance federation.

"This has a social impact," Clark said. "If you're talking about annuities and retirement, if people stop paying into pension schemes, then this will put more pressure on the state than they already are under."

The other major aspect of the ruling involves car insurance. In countries that don't require premium calculations be gender-neutral, women pay less based on statistics that show they are generally less reckless drivers.

"Equality is equality," Parent said. "We don't see why responsible drivers should be discriminated against just because they are male and young."

Those groups behind the reform say calculations for insurance premiums should be more customized to clients. If that policy were adopted, they argue, premiums for females wouldn't necessarily go up; they would only increase for those with poor driving records.

However, revamping how insurance companies determine premiums will be complicated, said Vladimír Trop, a lawyer at the firm Kocián Šolc Balaštík in Prague.

"The overall amount of risk undertaken by insurers in respect to all clients, male and female, will not have changed, and it will not be possible to simply reallocate such risks or premiums between male and female clients," he said. "Premiums reflect risk, and differences in the risks between men and women cannot be abolished with the stroke of a pen."

Risk calculations based on gender are the most efficient way to calculate premiums, insurance industry officials say.

"The inclusion of the gender factor in determining premium rates, in our opinion, provides a good assessment of risk by insurance companies, and promotes healthy price competition among insurers," said Petra Hájková, a spokesman for the Czech National Bank, which monitors insurance premiums.

Changing how they are calculated will limit the insurance industry, according to Jolana Ackermannová, spokeswoman for the Czech Insurance Association, as it will cause "a loss of elasticity of the insurance market" and limit products.

Higher operating costs for insurance companies may also be passed on to consumers, who will in turn buy fewer insurance products, pushing prices even higher, Clark said.

"It's very clear that it's not discrimination; it's differentiation," she said, the same sort of differentiation used when calculating home insurance for someone in a city versus someone living on a flood plain.

How high prices will go is yet to be determined, Hájková said.

"The Czech insurance sector is stable and the ČNB is convinced that the consequences of the ECJ ruling will not jeopardize its stability," Hájková said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com