Madam, – Your Editorial (March 2nd) contains express and implied analysis of the consequences of the European Court of Justice decision that is not well founded in terms of economics. It is surpassed in this respect only by the incompetence in the drafting of EU directives on equality and the failure of the advocate general and the ECJ to respect the fundamental legal maxim, salus populi suprema lex.
You suggested that some in the insurance industry were seizing on the ECJ decision as an opportunity to increase their profits by adjusting their rates to reflect the decision. Your concern for the impact of the ECJ decision on insurance costs and the competitiveness consequences is laudable, but the cause of these consequences is the increase in costs, not the pursuit of profits.
The decision imposes a binding constraint on the industry. Binding constraints are by definition costly. It was always open to firms in the industry to do what is now imposed, if it had offered a competitive advantage to do so. Obliging them to do what they preferred not to do must increase their costs, which will be recovered from the prices they charge. In other words, the average cost of insurance to all purchasers, for all purposes affected by the decision, will rise as a result of the decision. It is this cost increase, not opportunistic profiteering, that will drive up prices.
In the case of motor insurance, the “bias” against young male drivers is not simply a matter of recovering costs. It is also a price that is a disincentive to bad driving habits. It will now be significantly weakened, with obvious cost consequences for society.
Against a Europe-wide pension time-bomb problem, the implications of the decision are at least as serious as the headline motor insurance issue. The decision in effect obliges life assurance firms to offer the same annuity rates to all, regardless of life expectancy differences that are statistically identifiable.
You observe, correctly, that it means offering lower annuities for males and higher annuities for females from the same pot. This is another binding constraint. Once again, it appears to have escaped your attention that it also implies that the average pension annuity rate for males and females must fall. By common consent we are not providing sufficiently for pensions, and the expressed wisdom of the ECJ is to reduce the return to, and increase the cost of, making such provision.
Pious platitudes about doing the right thing are pointless. We need an immediate review and revision of the legal provisions that have led to this mess. – Yours, etc,