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The Actuary The magazine of the Institute & Faculty of Actuaries

Warning issued on Equality Bill

The Profession issued a warning about the possible practical consequences of the proposed Equality Bill on general insurance to the Minister for Women and Equality, Harriet Harman, in August. In the paper entitled The Equality Bill — Age Discrimination in General Insurance — Commentary from the Actuarial Profession, the Profession expressed concerns the changes were unworkable.

The paper responded to the Rt Hon Harriet Harman’s statement to the House of Commons on the UK Equality Bill on 26 June. The Profession’s main concern relates to the potential requirement for insurance companies to provide actuarial justification for insurance premiums that differ by age.

The co-author of the paper, Duncan Anderson, said individual insurance companies would not all have enough data to derive statistically justifiable premiums for all ages, particularly for groups with unusual insurance needs, or small customer groups. He said: “If legislation requiring actuarial justification of rates was introduced, some companies, particularly new insurers, would find themselves in the difficult position of having by law to quote actuarially justifiable premiums, yet having insufficient data to do so on a statistical basis.”

These issues would be particularly problematic if insurers were required to provide insurance quotations for all age groups, which is also currently being debated. “Few insurers have, for example, extensive experience of insuring 80- year-olds taking skiing holidays, or 18-year-olds driving Ferraris — at present the insurance needs of such customers are met by specialist companies who use specialist underwriting judgment to set prices, rather than statistical approaches,” he said.

The paper also discusses why premiums might not in any case be directly proportional to the expected cost of claims. These include the use of fixed monetary loadings reflecting the expense of administering the policy, and marketing activity which directly or indirectly results in commercial discounts being offered for different age groups.

The Profession has called for a more in-depth exploration of the legislation’s potential consequences. The paper’s authors are members of the Profession who are part of HM Treasury’s working group looking at age discrimination in financial services, to feed into the Equality Bill, which is likely to be published in the autumn.