Tuesday, May 17, 2011

Gender and annuities: insurance as a repugnant transaction in EU

Considerations of public policy sometimes contribute to making certain kinds of transaction repugnant.
Ran Shorrer points me to this recent decision: Annuities hit by European court ban on gender bias

"The European Court of Justice (ECJ) has ruled gender based pricing of annuity and insurance contracts is incompatible with human rights.

"The ECJ has confirmed a challenge by Belgian courts asking whether taking gender into account when writing private insurance contracts was incompatible with European anti-discrimination directives.

"The Court has ruled that, in the insurance services sector use of gender bias will be invalid with effect from 21 December 2012.
"Currently the expectation by UK providers that men will live shorter lives means males receive a higher income per year from their annuity contract than women with the same size pension pot."

Ran writes: "Since life expectancy really differs between men and women, and since this is a signal that cannot be manipulated , it was widely used and its ban constitutes a huge problem to the producers."


Jon Baron said...

I don't see what is wrong with the court's decision. Arguably, gender is a "pre-existing condition", and the function of insurance is reduced if insurers can take these into account. In the limit, if the duration of future life were completely predictable, insurance would be pointless (except as a binding device to encourage personal saving).

Differential pricing of insurance is much easier to justify when it provides incentive. But sex-change is too expensive to be incentivized by differential rates.

ran said...

But this insurance is only part of what you get when you buy an annuity as it is a bundle of insurance and investment components. This makes other saving schemes, which do not insure against longevity, more attractive to males.