Press release

18 August 2008

The introduction of age discrimination legislation in the proposed UK Equality Bill could result in requirements that are not workable in practice, the Actuarial Profession says.

The warning comes in the Profession’s paper titled The Equality Bill – Age Discrimination in General Insurance Commentary from the Actuarial Profession.

The paper has been sent to Minister for Women and Equality Harriet Harman, in response to her statement to the House of Commons on the UK Equality Bill on 26 June.

The Bill could have unworkable consequences for the general insurance industry, particularly in motor and travel. The Profession’s main concern relates to the potential requirement for insurance companies to provide actuarial justification for insurance premiums that differ by age.

Paper co-author 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 judgement to set prices, rather than statistical approaches.”

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 calls 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 UK Equality Bill, which is likely to be published in autumn.

For more information: tel. Fleur Morrison 020 7632 1453 or email fleur.morrison@actuaries.org.uk

To view the paper, please visit: http://www.actuaries.org.uk/__data/assets/pdf_file/0007/137185/EqualityBill_comments_20080813.pdf

Enquiries: Tel. Fleur Morrison on 020 7632 1453 or email fleur.morrison@actuaries.org.uk

Notes to Editors

1. Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
2. Members of the Profession have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.
3. The Profession is governed jointly by the Faculty of Actuaries in Edinburgh and the Institute of Actuaries in London. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of the Profession in society.