Gender based annuity pricing, Haruspicy and the end of Science

Neil Copeland

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Will the recent European Court of Justice (ECJ) ruling over gender-based pricing of insurance products result in a rebirth of Haruspicy?

Pretty much since the Enlightenment we have got used to approaching the world in a logical fashion. The Oxford English Dictionary says that scientific method is: “a method of procedure that has characterised ….. science since the 17th century, consisting in systematic observation, measurement, and experiment, and the formulation, testing, and modification of hypotheses.”

Over time observations and measurements of life expectancy have been made, formulated  and tested and a hypothesis developed which says that women live longer than men.

Hypotheses tend to represent the generally accepted position. Hypotheses are subject to periodic retesting and where, after rigourous testing, a hypothesis appears to no longer adequately explain an observed phenomenon then it can be replaced by a new hypothesis which offers a better or more complete explanation. Whilst no hypothesis would ever be held to be an eternal truth, neither would it be discarded or ignored without a compelling rationale to do so.

The learned members of the ECJ, however,  appear to have overturned the current hypothesis on life expectancy, not because compelling statistical evidence has emerged which suggests the hypothesis is not valid, but on a whim because it is not “fair”, whatever that means, and objective justification no longer seems to be a defence.

So it looks like we will be faced with the outlawing of gender based pricing by the end of 2012, and I’ve been trying to think of alternative approaches which insurance companies could use to help them price their products, and I’ve come up with Haruspicy.

Haruspicy is the divination of future events including, potentially, the date of an individual’s death, from the inspection of the entrails of sacrificed animals, particularly sheep. An extensive trawl of the internet can find no evidence that Haruspicy based pricing of insurance products, including annuities, is illegal under European law.

So there you have it – in 21st century Europe you can price your annuities based on the analysis of a sheep’s entrails but not on the analysis of observable statistical evidence of differing life expectancy between males and females.

Galileo would be so proud of how far we’ve come!

Neil Copeland

Post by Neil Copeland

Director, pensions consultant and adviser to trustees and employers on all aspects of work based pension schemes.