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An Unequal Price For Equality

Europeans are about to pay an unequal price for equality.

On March 1, Europe’s top court banned insurance companies from basing premiums on gender. EU Justice Commissioner Viviane Redding called the decision “an important step towards putting the fundamental right of gender equality into practice.” The court labeled gender-differentiated premiums discriminatory in a case originally brought by Test-Achats, a Belgian consumer group.

While it’s admirable that the EU has recently focused on anti-discrimination policies, especially those related to gender, they have taken a step into absurdity.

In the first place, I am among many who aren’t convinced that such differentiation counts as discrimination. Young men generally pay more for auto insurance, because they run a higher risk of needing their coverage. Similarly, women pay less, on average, for life insurance because men generally die slightly younger.

These aren’t opinions based solely in prejudice or the gut feelings of insurers — that would be not only bad policy, but terrible business. Sajjad Karim, a British member of the European Parliament, was quick to point out that “It is a statistical reality that young men have more accidents than women so it should be reflected in their (insurance) premiums.” Life and health insurance premiums are calculated no less carefully.

If government regulations remove broad categories such as gender from insurance companies’ toolkits, it begs the question of whether everyone should pay the same rate for insurance, regardless of mitigating factors. Is basing premiums on age discriminatory? What about state of health? Smoking?

This leads to the second problem with the European ruling. If the court was, indeed, seeking gender equality, this decision is a questionable way to achieve it. According to estimates reported by The Guardian, young women can expect to see their car insurance rise by an average of 25 percent, and might risk as much as a 60 percent increase. Young men will benefit from around a 10 percent reduction in costs. And, while men’s annuity rates will likely drop, it is not projected that women will benefit significantly. Women as a group will be taking a much greater financial hit than men in the name of equality.

As rates go up, it is also likely, in cases where insurance isn’t compulsory, that lower-risk groups will likely buy little or no insurance at the higher rate, further elevating prices for those who remain. For car insurance, where mandated by law, the ruling may eventually achieve equality once the initial ripples even out. But it will be equality at a higher price than markets would have set, as insurance companies will have to determine premiums by much broader strokes.

James Slack, of the Daily Mail, was one of many editorialists who complained that the verdict was a reminder “of how Britain — and even the financial markets — are no longer in control of their own affairs.” Skeptics, especially in the U.K., argue that regulating insurance markets shouldn’t be the EU’s business at all, much less in this application of the Charter of Fundamental Rights included in the Lisbon Treaty.

It is undoubtedly important to protect disenfranchised groups, and insurance is not a realm immune from this need for protection. And there is no doubt that women still face varied inequalities that could be rectified. But there is a difference between forcing someone to pay a higher premium because of unfounded prejudice and offering someone a premium that reflects the best data available about that individual’s risk. By forcing insurers to be sex-blind, the EU’s Court of Justice has gone beyond safeguarding the rights of its citizens.

Allowing judges to interfere in how insurers set premiums will hurt all insurances customers in the long run. It may be equality, but I doubt the ability to be overcharged equally was one of the fundamental rights worrying Europeans most.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, is the author of Chapter 20, “Giving Back,” in our firm’s most recent book, The High Achiever’s Guide To Wealth. He also contributed several chapters to the firm’s previous book, Looking Ahead: Life, Family, Wealth and Business After 55.

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