One Day We Might All Be the Same Shade of Grey

According to legend, the Norse gods created Ask and Embla…and in the process practiced discrimination by forming them separately from an Ash trunk and an Elm trunk.  At least, the European Court of Justice (ECJ) might call it discrimination based on its recent effort to increase the equality between male and female insureds in Europe. 

Recently, the BBC reported that insurance companies in Europe are no longer allowed to differentiate between male and female policyholders when calculating their premium.   The reason for this, per the ECJ, is that charging different rates for these separate segments of the population is a form of discrimination. 

This ruling has some saying that the insurance industry will be “thrown into a turmoil” since insurance companies have historically used gender as a key component in the calculation of premiums.  However, on the other side of the debate, there are those hailing it as a step towards basic gender equality.  Martin Lewis, creator of believes there is logic to the gender ban, and does not believe that his rates should depend on the poor driving skills of his fellow man.

The Casualty Actuarial Society (CAS) describes some principles of a rate in its Appendix 1 of its Statement of Principles Regarding Property and Casualty Insurance Ratemaking :

  • Principle 1: A rate is an estimate of the expected value of future costs. 
  • Principle 2: A rate provides for all costs associated with the transfer of risk. 
  • Principle 3: A rate provides for the costs associated with individual risk transfer
  • Principle 4:  A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all costs associated with an individual risk transfer.

Do you think that the current ECJ ruling supports or violates the CAS principles above?  How do you believe that the ruling will impact insurance pricing?  Do you believe that the use of gender in premium calculations is a discriminatory act?

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