EU may ban gender-based insurance rates

The EU may ban underwriting based on gender, the Wall Street Journal reports.

An advocate general for the EU courts has determined that charging men and women different rates violates anti-discrimination codes. The treaty that created the EU bans discrimination but there is an exemption for insurance products. The AG proposes overturning that exemption.

But the exemption is there for a pretty good reason – the discrimination is actuarially appropriate. For life insurance, women live longer than men. In auto insurance, women are in fewer accidents, and those accidents tend to be less serious. And rates are adjusted accordingly.

The advocate general’s opinion doesn’t mean a ban is in place. The opinion is advice to the court, somewhat like an attorney general’s opinion in the United States. Often courts follow the advice, but they don’t have to.

It would be smart for the court to turn away from this opinion.

In the U.S., actuaries learn (frankly, we must memorize over and over) that prices must not be unfairly discriminatory, emphasis on unfairly. And gender is a very good rating variable. It is objective and not subject to manipulation (except at the extreme – doubting that many guys will go under the knife to get a better deal from the gecko). It is a good predictor of behavior.

Remove this variable, and insurers could look for proxies that align closely with gender, an absurd example being whether the customer prefers to watch Monday Night Football or Glee?

(This article is behind the WSJ firewall, but if you want to read the whole thing:

  • Call up the partial article.
  • Copy the url link
  • Open google.com
  • Paste the link into the search box. The search engine will find one article.
  • Follow the link to that article.

Don’t know if the Journal does this on purpose or if it’s a glitch, but it has been there for months.)

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