Test-Achats: still trying to work out what it means for your business?

The European Commission has said it will publish guidance on Test-Achats in Q4 2011. That guidance is expected to consider:

• The application of Test-Achats to contracts effected on or after 21 December 2012; and
• Examples of gender-related reinsurance and capital reserving practices that will still be lawful notwithstanding the Test-Achats decision.

HM Treasury has said it will consult in the autumn of 2011 on its proposals for amending the Equality Act 2010 to make sure it properly reflects the Test-Achats decision.

The Financial Services Authority (FSA) may also issue guidance or update its rules to reflect the new position.

Although it is perhaps unlikely, because the Directive is minimum harmonising, it is at least possible that the Commission or some Member States will use these opportunities to make it unlawful to discriminate based on gender even though, all other things being equal, that discrimination would have been lawful. Reinsurance agreements, and pension buy-ins and buy-outs are examples.

In these circumstances, an insurer that:

• Can reasonably wait for the Commission's guidance and the Treasury's consultation should do so;
• Cannot reasonably wait, for example, for systems and controls, capital, budget or other reasons, should consider taking detailed legal advice on one or more of these issues:
  • The detailed legal and other arguments that could be used for lobbying and other purposes to ensure that Test-Achats only applies to new policies effected on or after 21 December 2012, rather than policies effected before that date;
  • The validity and enforceability of its contractual right to vary policy terms;
  • The extent of the risks it will face, if it has a right to vary policy, but decided not to do so, and how best to manage those risks;
  • The insurer's regulatory obligations in each of these circumstances;
  • The insurer's current and proposed practices - which may indirectly discriminate between the genders in a way that could also be unlawful when Test-Achats is applied; and
  • Any other issues that could arise in the insurer's particular circumstances (for example, if the insurer is issuing annuity projections in the period before 20 December 2012 for annuity contracts that will be entered into after that date).

Wragge & Co's insurance specialists can advise insurers on each of these issues and more. Further information about their work in the sector is available online under the firm's insurance services.