Is Risk Differentiation on European Insurance Markets in Danger?
| Author | Michael Faure |
| Published date | 01 March 2007 |
| Date | 01 March 2007 |
| DOI | http://doi.org/10.1177/1023263X0701400104 |
| Subject Matter | Article |
14 MJ 1 (2007) 83
IS RISK DIFFERENTIATION ON EUROPEAN
INSURANCE MARKETS IN DANGER?
M F*
ABSTRACT
e paper deals with the impor tance of risk di erentiation on insurance markets. It is
argued that a tendency towards a prohibit ion of risk di erentiation supported by the
equality principle may endange r the insurability of particular ri sks. However, Council
Directive 2004/113/ECC implementing the principle of equal treatme nt between women
and men in the access to and supply of goods and surfaces still provides su cient scope
for insurers to apply risk di erentiation. Examples are given from tra c insurance and
ooding insurance to demonstrate that al so insurers themselves sometimes underestimate
the importance of risk di erentiation.
Keywords: Insurance, Liability, Risk di erentiation, Non-discrimination, Moral hazard,
Solidarity, Verzekering, Aansprakelijk heid, Risicodi erentiatie, Moreel risico, Sol idariteit,
Assurance, Responsa bilité civile, Di érentiation des ri sques, Aléa morale, Solidarité
§1. I NTR ODUCT ION
Insurers today n d themselves in troublesome tim es. e number of catastrophic events
has been on the rise, and so i n turn have the demands of society on insurers to provide
adequate compensation. If they fai l to do so, insurers may be criticized for being unable
to furnish society with the cover it exp ects. In this respect, insurers are increasingly
reminded of their social responsibi lity. e notion of soc ially responsible governa nce
has also reached the i nsurance world. Moreover, even in cases in which cover can be
* Michael Faure is profes sor of comparative a nd internationa l environment al law at Maast richt University
and Academic Dire ctor of the Maast richt European I nstitute for Transnat ional Legal R esearch
(METRO). I am gratefu l to the participants in t he joint conference between the Genev a Association
for the Study of Ris k and Insuranc e and the Europea n Association of L aw and Economics (Ber lin,
16–17 Ju ne 2005) and to two a nonymous referees for use ful comments on a n earlier version of this
paper.
Michael Faure
84 14 MJ 1 (20 07)
provided, in surers someti mes apply measures ex post which are seen as punitive by the
insured, such as increasing the premium or even excluding individuals from cover. Also
in this respect there exist possible objections that this is in con ict with the insurers’
obligation toward socia lly responsible governance.
It seems that traditional i nsurance instruments like risk d i erentiation, which were
always deemed necessar y to make risks i nsurable, are als o under serious attack in t he
media as well as at policy level.1 is is espec ially true of risk di erentiation on the basis
of gender, race, age or sexual preference.2 It has o en been argued that while such a
di erentiation of risks may be necessary f rom an insurance economic point of v iew, it
may collide with basic lega l principles like the equalit y principle and the prohibition of
discrimination.
Historically, lawyers and polic ymakers have always had d i culties wit h discri mination
in insurance pol icies going too far and may, from a policy perspective, have good reasons
to distrust d iscrimi nation. Hence, they increasi ngly require insu rers to provide all-
inclusive cove r, o en invoking the notion of solidarity to justify this requirement: good
risks should be ‘solidaire’ wit h bad risks and thus a discri minatory di erentiation should
be avoided. e reason, according to a recent paper by iery and Van Schoubroeck, is
that lawyers and insurers have profoundly di erent views on the concept of fai rness in
insurance clas si cation.3
In this paper I would li ke to examine a tendency at polic y level and in the law to
prevent insurers from exercising basic ideas of in surance economics, such as clas si cation
and di erentiation of ris ks. e importance of risk d i erentiation for the i nsurability of
risks wil l be recalled and several exa mples of policy trends will be disc ussed in order to
show that these may come into con ict with basic economic principles. In addition to
providing examples of t hese potential con icts, the point wi ll be made that certai n trends
in policy and legis lation may have adverse e ect s at the normative level, meaning t hat
they may render certain r isks uninsur able or could even lead to an increase in t he accident
risk (especially in t he area of liability in surance). e paper thus attempts to add to the
existing liter ature by bridging the legal literat ure based on the equality princ iple and the
1 See in this respec t more particularly t he special issue on the equa lity principle in 13 MJ 3 (2006) a nd
for an application to in surance espe cially the c ontribution by E. Ca racciolo Torella, ‘ e principle
of gender equalit y, the goods and ser vices directive and i nsurance: a conceptual a nalysis’, 13 MJ 339
(2006 ).
2 See on this issue from a le gal perspecti ve J.H. Gerards et al, Geneti c Discriminati on and Genetic Priva cy
in a Comparative Persp ective, (Intersentia, 2 005) and the papers contai ned in the special is sue ‘ irty
years of EU sex equa lity law’ of the Maa stricht Journal of Eu ropean and Comparative Law (2 005), 30 5–
493, as well as L. Waddi ngton and M. Bell, ‘More equa l than others: disti nguishing Europea n Union
Equality Directives’, 38 C.M.L.Rev. 587 (2001), and see from an economic perspect ive M. Hoy and P.J.
Lambert, ‘G enetic Screeni ng and Price Discriminat ion in Insura nce Markets’, 25 Geneva Papers on
Risk and Insuranc e eory 103 (2000).
3 Y. iery and C . Van Schoubroeck, ‘Fairness a nd Equality in Ins urance Classi cation’, 31 e G eneva
Papers on Risk and In surance 191 (2006).
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