The importance of being equal

Does the insurance industry have anything to fear from the government’s new Equality Bill? The proposed legislation unveiled by the government last week, will, among other things, ban age discrimination in the provision of goods and services. This includes financial services, such as insurance.

Given that the old and young are routinely charged higher premiums for cover such as motor, is there a danger that insurers will be hit by this law? And what about insurers that exclude certain age groups from a product, will that become unlawful too?

Karl Murphy, a partner at actuary EMB, says the proposals raise a number of issues for the insurance industry. “Insurance companies differentiate on the ground of age because it is an accurate measure of risk, not a method of discriminating against segments of the population.”

Murphy adds: “If we did not rate premiums using this methodology it would result in more costly insurance for many. We believe that insurers should be allowed to rate by risk, and let a free and competitive market take its course.”

The text of the Equality Bill appears to give some comfort to the insurance industry. It says: “[The new law] will not affect the differential provision of products or services for older people where this is justified – for example…actuarially justifiable age-based treatment in areas such as financial service.”

But Jonathan Davies, a financial services expert at City law firm Reynolds Porter Chamberlain, says the impact is not clear: “How heavily the new Equality Bill will burden the financial services sector depends on how the legislation determines when age is a legitimate factor in the marketing or pricing of a financial product.

“It is good that the government at least concedes that age discrimination may be actuarially justified. What has not been clarified yet is whether the new law will allow age factors in premiums where statistics show that older, or younger, people as a class have a higher or lower claims record.”

The government has established a working group to help it understand where age discrimination exists in the provision of financial services and the possible impact of the legislation in this area. The insurance industry is lobbying to ensure that risk-based pricing will not be compromised.

The bill goes on to say: “We want to make sure we only outlaw unjustified discrimination without unintentionally stopping things that are beneficial to particular age groups.” But it also warns of “concerns about restricted access to some financial services, such as insurance”.

Insurers have faced criticism from older people over huge hikes in travel insurance premiums once they reach old age – if cover is available at all – irrespective of a change in their health.

But insurers insist they do not discriminate. Nick Starling, the ABI’s director of general insurance and health, says: “Insurers agree that unfair discrimination on the basis of age is wrong. That is why they do not practice it.

“We are engaged in discussions with the government on the proposed bill, which we hope will endorse this important principle.”

Starling says that insurance for older people is available from a range of providers. But he notes that some people might need help finding the most appropriate policy.

“We are working to improve this, and we know that the government and age charities will support our efforts in this area,” he says.

The ABI has set up a working group with insurers, Age Concern and Help the Aged to explore ways to help older customers find insurance. It is likely to recommend some form of a contact centre to direct customer to the best providers.

There are concerns from the insurance sector that the bill could stifle competition in the sector, which would lead to higher premiums for consumers.

Starling says: “Legislation, no matter how well-intentioned, could have the unintended negative consequence of forcing some insurers to withdraw certain products altogether, reducing competition and availability and pushing up prices for all age groups.”

EMB’s Murphy comments: “As the number of adverts for insurance products on TV proves, it is a very competitive market and this directly relates to the premiums which certain groups of the population pay, dependent on risk.”

And Davies concludes: “The financial services industry is certainly going to see this as legislation that intrudes unnecessarily on a market where there is a lot of competition and innovation aimed at covering all age groups with relevant products.”

Three years ago insurers successfully defended gender-based risk pricing after a European directive threatened to outlaw it, which would have had far-reaching consequences for the insurance industry.

The Gender Directive, giving equal treatment to men and women in the provision of goods and services, could have ended the ability of insurers to give cheaper motor premiums to women.

But after pressure from insurers, the directive was amended to allow gender to be used as a basis of risk if objective data could justify the difference.