Is Price Walking allowed?
Price walking is a phenomenon used by insurance companies where premiums for existing customers are gradually increased year after year, even if their level of risk remains the same. This practice has been the subject of scrutiny in recent years, with concerns that it may lead to indirect discrimination against certain groups of policyholders.
In this article, we will explore the relevant regulations around price walking in the European Union, including the EU law on gender and the Insurance Distribution Directive (IDD). We will also discuss a recent consultation paper published by EIOPA on the risks of using non-risk-related behavioral data for differential pricing practices and how it could amplify the risk of indirect discrimination. Finally, we will examine the implications of these regulations for insurers and policyholders in the EU.
Relevant regulations
EU law on gender
The prohibition of discrimination is mentioned in various legal sources, both in primary and secondary EU law[1]. This rich legal framework distinguishes between direct discrimination and indirect discrimination.
- Direct discrimination is when one person is treated less favorably than another is, has been, or would be treated in a comparable situation on any of the grounds mentioned in various legal provisions, and
- Indirect discrimination is when an apparently neutral provision, criterion or practice would put persons having a particular protected characteristic (e.g. their religion or belief, disability, age or sexual orientation) at a disadvantage compared with others.
The European Court of Human Rights (“ECtHR”) has drawn on the definition of indirect discrimination in some of its recent judgments, stating that a difference in treatment may take the form of disproportionately prejudicial effects of a general policy or measure which discriminates against a group[2]. The elements of indirect discrimination are (i) a neutral rule, criterion or practice, (ii) that affects a group defined by a ‘protected ground’ in a significantly more negative way, and (iii) by comparison to others in a similar situation.
The first identifiable requirement is an apparently neutral rule, criterion or practice – there must be some form of a requirement that is applied to everybody. The second identifiable requirement is that the apparently neutral provision, criterion or practice places a “protected group” at a particular disadvantage. For now, reference is made to the collection of phrases used by the ECtHR appearing in the Nolte case when speaking of sex discrimination: “In order to be presumed discriminatory, the measure must affect “a far greater number of women than men”[3] or “a considerably lower percentage of men than women”[4] or “far more women than men”[5]. As with direct discrimination, a court will still need to find a comparator in order to determine whether the effect of the particular rule, criterion or practice is significantly more negative than those experienced by other individuals in a similar situation. In contrast, Article 14 of the European Convention on Human Rights (“ECHR”) guarantees equality in relation to the enjoyment of the substantive rights guaranteed by the ECHR. In addition, Protocol 12 to the ECHRexpands the scope of the prohibition on discrimination to cover any right which is guaranteed at the national level. The Protocol has only been ratified by 17 of the 47 CoE members, among which six are EU Member States. This means that there exist different levels of obligations in European non-discrimination law. So far Sweden has not ratified Protocol 12 to the ECHR.
Furthermore, the European Council has adopted a directive on goods and services[6]. In this directive, discrimination is prohibited due to gender in the provision of goods and services.. The ban that came into effect in 2007 also applies in principle to insurance companies. With this in mind, it is unclear whether or not price walking is prohibited under EU anti-discrimination law and whether or any such prohibition would be enforceable in countries that have not ratified Protocol 12 . It is therefore of interest to look closer at other European insurance legislations.
The Directive (EU) 2016/97 — the Insurance Distribution Directive (IDD)— regulates how insurance products are designed and distributed in the EU. It sets out to harmonise regulation of the insurance market across the single European market and to improve consumer protection standards. The IDD aims to ensure that distributors take responsibility for consumer outcomes and that the products sold meet consumers’ needs. The directive is a minimum harmonization directive, which means it sets minimum standards, often in recognition of the fact that the legal systems in some Member States have already set higher standards.
Article 17 of IDD stipulates that “Member States shall ensure that, when carrying out insurance distribution, insurance distributors always act honestly, fairly and professionally in accordance with the best interests of their customers.” It can therefore be discussed as to whether a procedure, where loyal policyholders within the same risk group receive different premium increases may conflict with the requirement that customers be treated fairly and without discrimination. Furthermore, article 9 of IDD states the “..Directive shall not affect the power of the host Member States to take appropriate and non-discriminatory measures to penalise irregularities committed within their territories which are contrary to their legal provisions referred to in Article 11(1), in so far as is strictly necessary.” In other words, it is possible for member states to broaden the scope of the directive if it is done to protect the general good. This could be interpreted as a possibility for member states to apply stricter provisions in order to avoid indirect discrimination and thereby protect the general good.
In July 2022 EIOPA published a consultation paper on the supervisory statement on differential pricing practices in non-life insurance lines of business. The paper stated that the increasing use of different types of behavioural data not related to risk or cost of service for differential pricing practices also increases the risks that some of these datasets can be biased (i.e. correlated with protected characteristics) and therefore increases the risks of indirect discrimination. These risks could be amplified when data is processed with complex AI systems. In other words, there could be an amplified risk for indirect discrimination when non-risk-related behavioural data is used.
Looking ahead
The phenomenon of price walking has been criticized for its potential to disproportionately affect certain groups of customers and result in indirect discrimination. While there are various regulations in place in the EU to prohibit discrimination in the provision of goods and services, including insurance, it is still unclear whether price walking falls under these regulations. However, recent developments in the form of the Insurance Distribution Directive and EIOPA’s consultation paper on differential pricing practices suggest that stricter provisions may be applied to avoid indirect discrimination and protect consumers. It remains to be seen how these regulations will be implemented and enforced in practice, but they represent an important step towards ensuring fair treatment of all insurance customers.
[1] See amongst others – Article 14 of the European Convention on Human Rights
[2] ECtHR, D.H. and Others v. the Czech Republic [GC] (No. 57325/00), 13 November 2007, para. 184;
ECtHR, Opuz v. Turkey (No. 33401/02), 9 June 2009, para. 183; ECtHR, Zarb Adami v. Malta
(No. 17209/02), 20 June 2006, para. 80.
[3] ECJ, Rinner-Kühn v. FWW Spezial-Gebäudereinigung, Case C-171/88 [1989] ECR 2743, 13 July 1989
[4] ECJ, Nimz v. Freie und Hansestadt Hamburg, Case C-184/89 [1991] ECR I-297, 7 February 1991, and ECJ, Kowalska v. Freie und Hansestadt Hamburg, Case C-33/89 [1990] ECR I-2591, 27 June 1990.
[5] ECJ, De Weerd, née Roks, and Others v. Bestuur van de Bedrijfsvereniging voor de Gezondheid,
Geestelijke en Maatschappelijke Belangen and Others, Case C-343/92 [1994] ECR I-571,
24 February 1994.
[6] Directive 2004/113/EG
