29.04.2014
EU Proposal

Why an “omnium insurance” scheme is not in customers’ interest

BILD-Zeitung and other publications are now reporting that the EU is seeking to implement an “omnium insurance” scheme in which all insurance customers would “pay equal premiums” regardless of age. Such omnium coverage would render hollow fundamental principles of the insurance business, to the detriment of customers.

According to the reports in the media, the criterion of “age” is to play no role in the pricing of individual insurance premiums. However, the EU Commission clarified yesterday, in response to an inquiry, that no policy discussions are currently pending among the legislative institutions of the EU with respect to the 2008 proposed Directive on equal treatment in access to goods and services based on age criteria.

Markus Ferber Markus Ferber, Member of the European Parliament (European People’s Party):

“Anyone who seriously calls for an “omnium insurance” scheme fails to understand that there must be a reasonable relationship between insurance premiums and benefits. This is the only way for consumers to receive benefits in the event of a loss and for insurance companies to calculate rates fairly.

‘Age’ in particular is a factor which justifies differences in the calculation of premiums: it is clear to everyone that a young person has more years ahead of him than a 60-year-old. This difference must be factored in to the insurance premium calculation. It’s only fair and consumer-friendly besides. After all, abandoning risk-appropriate pricing would ultimately mean that average premiums will increase significantly for everyone. No one wants that.”

 

GDV has taken a clear position with respect to a possible omnium insurance scheme:

Adequate differentiation between various risks is a key and basic principle of the insurance business. This principle should not be called into question. Risk-appropriate premium calculation is not discrimination, but rather objectively appropriate differentiation along the lines of demonstrably different risks.

Equal treatment for equal risks, and vice versa

The very expression of equal treatment in the insurance business is for equal risks to be treated equally and unequal risks to be treated unequally. That age and disability are factors which affect risk in actuarial calculations is clearly demonstrated by the statistical data. A life insurance policy for an 18-year-old differs fundamentally from a life insurance policy for an 80-year-old due to the difference in life expectancy.

Consumers benefit from differentiation

We must not forget that taking into account age and disability information benefits consumers. Abandoning risk-appropriate rates would ultimately mean a significant increase in average premium levels. Certain products would no longer make sense for many low-risk customers, and some product groups would disappear from the market entirely if different risks can no longer be taken into account.

The European umbrella association Insurance Europe has published a study on the question as to the effect of age and disability information on the shape of insurance coverage, entitled “Why the use of age and disability matters to consumers and insurers” (PDF).