Actuarial and statistical data

6.27 Data, in particular actuarial and statistical data, informs evidence-based risk assessment in insurance. Stakeholders expressed concerns about the accuracy, relevance and currency of data relied upon by insurers in making decisions about insurance on the basis of age. To address these concerns, the ALRC recommends that the Australian Government and insurers negotiate an agreement requiring the publication of data upon which decisions about insurance offerings based on age are made. In the course of negotiating such an agreement, the ALRC suggests that other approaches to addressing such concerns be explored.

Agreement requiring publication of aggregate data

6.28 In assessing risk and determining ‘risk appetite’, insurers may use available data, including from the Australian Bureau of Statistics and the Australian Institute of Health and Welfare, and their own claims book experience.[41] Insurers often also rely on guidelines issued by reinsurers.[42] However, aside from complaint processes under anti-discrimination legislation or formal judicial review, the current system offers limited independent oversight of whether insurers are basing decisions on reasonable actuarial or statistical data.

6.29 The ALRC recommends that the Australian Government and insurers should negotiate an agreement requiring the publication of aggregate data upon which decisions about insurance offerings based on age are made.

6.30 A recent investigation by the Tasmanian Anti-Discrimination Commissioner into volunteers, age and insurance concluded that the data being relied upon by insurers and provided to the Commissioner was not ‘of sufficient detail or relevance’.[43] The Commissioner stated that the data was insufficient ‘to support the claim that older volunteers pose a greater insurance risk … because of their age’.[44] The Commissioner also expressed the view that the current approach of insurers is ‘based solely on age and not on risk’.[45]

6.31 In addition, stakeholders in this Inquiry expressed broad concerns about lack of transparency. For example, the South Australian Equal Opportunity Commission submitted that

the lack of transparency and the imbalance of power compounds the disadvantage experienced. A more transparent industry would enable those seeking insurance to be provided with and understand the reasons behind any refusal.[46]

6.32 The ALRC is of the view that increased transparency around such data would address some of these concerns. The Association of British Insurers (ABI) and the British Insurance Brokers’ Association have entered into a non-statutory agreement with the UK government. The agreement requires ABI to publish aggregate data for the industry as a whole indicating how age is used when assessing risk and pricing travel and motor insurance products.[47] The agreement was negotiated in part to respond to consumer concerns that changes in insurance premiums ‘due to a person’s age are not always proportionate to risk and the cost of claims’.[48] The agreement contains a number of general principles, including to:

  • publish the aggregated data in the form of a table or chart;

  • explain the chart or table, and any technical terms, in a form that is intelligible to someone who is not an insurance expert;

  • identify which companies provided the data and the period to which it relates;

  • review and, if necessary, update the data at intervals not exceeding one year; and

  • make the data available free of charge on the ABI website, in electronic forms to other organisations and as a hard copy on request.[49]

6.33 However, insurers expressed significant concerns about disclosing data. For example, Suncorp submitted that

the data and analysis within the underwriting process is key intellectual property for insurers and is the process in which insurers can differentiate themselves and compete in the market.[50]

6.34 The ICA also stressed the sensitive nature of data and expressed some concern about the

utility of the proposal to require the provision of data, statistics and other relevant information, which is the intellectual property of insurers, and which would be difficult to interpret by most people without statistical or actuarial training.[51]

6.35 The ALRC recommends that the Australian Government and insurers should negotiate an agreement similar to the one in the UK. The agreement should require the publication of aggregate data upon which decisions about insurance offerings based on age are made. This approach allows consideration by key stakeholders of the need to balance increased transparency and confidence in the data and insurer decision-making with issues of commercial sensitivity and intellectual property. In line with the approach taken in the UK, the publication of such data should be: aggregated; easily understood by the general community; identify the contributing insurers and periods; up-to-date and reviewed as necessary; and accessible free of charge.

6.36 In addition, in the course of negotiating such an agreement the ALRC suggests that IRAG and similar bodies explore other approaches to addressing the concerns raised about data.

6.37 For example, one possible approach involves extending the Australian Prudential Regulation Authority’s (APRA) existing prudential and data collection role. APRA’s current focus is on prudential standards, and data is collected primarily for the purposes of feeding into APRA’s supervision of insurers. The focus of such data includes insurers’ financial performance, financial position and capital adequacy.[52] However, the Tasmanian Anti-Discrimination Commissioner recommended that ‘insurers be required to submit for publication’ information about ‘products where age is a factor used to exclude coverage or determine premiums and benefits and the data on which these decisions rely’.[53] If APRA’s role were extended to include the collection of such data, this would centralise reporting requirements for insurers. Moves towards increased insurance-related data transparency by APRA would, in turn, assist in increasing the transparency of age-related insurance data.[54]

Recommendation 6–2 The Australian Government should negotiate an agreement with insurers offering products in the Australian market requiring the publication of data upon which decisions about insurance offerings based on age are made.

Anti-discrimination legislation and the insurance exception

6.38 There are a range of different insurance exceptions under Commonwealth, state and territory anti-discrimination legislation. The exceptions allow insurers to discriminate on the grounds of age in offering an insurance policy, or the terms or conditions upon which such a policy is offered, if certain conditions are satisfied. In the course of the Inquiry, stakeholders expressed concerns about two aspects of the insurance exception regime. First, stakeholders were concerned by the nature of the exceptions. Secondly, stakeholders expressed reservations about the relevancy, accuracy and availability of the actuarial or statistical data relied upon by insurers to satisfy the exceptions. The ALRC recommends that the Australian, state and territory governments review insurance exceptions under Commonwealth, state and territory anti-discrimination legislation to address such concerns. The ALRC also recommends that guidance material be developed about the application of the insurance exception under Commonwealth anti-discrimination legislation.

How does the Commonwealth insurance exception operate?

6.39 The Age Discrimination Act 2004 (Cth) (ADA) provides that insurers may discriminate on the grounds of age in offering an insurance policy, or the terms or conditions upon which such a policy is offered, if certain conditions are satisfied.[55] The conditions are satisfied if the discrimination is:

  • based upon actuarial or statistical data on which it is reasonable for the discriminator to rely; and

  • reasonable having regard to the matter of the data and other relevant factors; or

  • in a case where no such actuarial or statistical data is available, and cannot reasonably be obtained, reasonable having regard to any other relevant factors.[56]

6.40 As outlined in Chapter 1, the Australian Government is in the process of consolidating Commonwealth anti-discrimination legislation. The specific insurance exception under the Human Rights and Anti-Discrimination Bill 2012 (Cth) (HRAD Bill) provides that an additional condition must be satisfied. If the individual has given the insurer a written request for access to the data, the insurer must have provided the individual with a copy of the data or reasonable access to the data.[57]

6.41 The HRAD Bill contains a different approach to exceptions from the one under existing Commonwealth anti-discrimination legislation. It proposes moving to a more general approach to exceptions, while retaining some specific exceptions. The Bill incorporates a general justifiable conduct exception. The specific exceptions under existing legislation, including in relation to insurance, fall within this general exception.

6.42 In addition, s 54 of the ADA provides power for the AHRC and its President to require the production of actuarial or statistical data where a person has acted in a way that would, apart from the above exceptions, be unlawful. However, the HRAD Bill replaces the AHRC’s specific power to require production of data with a general power to obtain information in complaints and inquiries.[58]

6.43 A range of similar provisions operate at a state and territory level.[59]

Reviewing the exceptions

6.44 A number of stakeholders expressed concerns about the operation of the insurance exception. Particular concerns included: that insurers may rely on the exception without considering whether they have the necessary and appropriate data; and whether reliance is reasonable having regard to other relevant factors. For example, the Tasmanian Anti-Discrimination Commissioner expressed the view that

decisions to exclude people within certain age brackets or to provide coverage on the basis of increased premiums and/or reduced benefits, is taking place without the evidentiary basis required.[60]

6.45 Some of these concerns echo those conveyed to the Productivity Commission in its 2004 review of the Disability Discrimination Act 1992 (Cth) (DDA). The Productivity Commission outlined several concerns about the insurance exemption under the DDA. These included: access to insurance; the nature of, and access to, actuarial and statistical data; the nature of ‘any other relevant factors’; and reliance on stereotypes.[61]

6.46 Stakeholders suggested a range of approaches to address such concerns. Some submitted that specific exceptions should be removed and that the general exception included in the HRAD Bill should apply. Others argued that insurers should be required to apply for a specific exception. For example, the Law Society of New South Wales (LSNSW) submitted that

insurers ought to be required to apply for a specific exemption or show why an applicant over 65 years should not be covered by an insurance policy. This approach is favoured by the LSNSW rather than the general statutory exemption.[62]

6.47 The South Australian Equal Opportunity Commission supported a reverse onus of proof, suggesting that

any adverse decision based upon a ground protected by anti-discrimination legislation, such as age, should be assumed to be discrimination unless the insurance company provides evidence to rebut that presumption.[63]

6.48 However, a number of insurers and the ICA expressed strong support for retaining the insurance exception. The ICA submitted that

there is already in place in Australia a strong legislative regime to require the insurer to prove it meets all evidentiary requirements to rely on an insurance exemption.[64]

6.49 Suncorp submitted that ‘it is critical for the insurance industry to be able to lawfully discriminate during the underwriting process’.[65]

6.50 Insurers also highlighted the relatively low number of complaints in relation to insurance under the ADA. Insurers argue this suggests that the ‘current statutory insurance exemption accurately reflects insurer practice and assists insurers to explain the underwriting process to consumers, aiding early resolution of complaints’.[66] The ALRC considers that, given the individualised complaints-based nature of the ADA system, a low number of complaints does not necessarily mean the system is operating as intended.

6.51 In the Tasmanian context, the Tasmanian Anti-Discrimination Commissioner concluded that ‘the case had not been made for the application of the insurance exception’ under s 34 of the Anti-Discrimination Act 1998 (Tas). As a result, insurers relying on the data provided to the Commissioner are ‘potentially offering services, in the form of insurance, in breach of the Tasmanian Act’.[67]

6.52 Amendment to the insurance exception under Commonwealth legislation would have a significant effect on all types of insurance, not just those types of insurance that are the focus of this Inquiry. Further, many of the suggested amendments to the exception involve a fundamental shift in the structure of the exception framework, for example from general and specific to general exceptions alone, or from permanent exceptions to temporary exceptions.

6.53 As a result, the ALRC does not consider it appropriate to recommend the retention or removal of the insurance exception. However, the ALRC considers it would be useful to have a separate review of the insurance exception. A separate review would be particularly valuable given the de-regulatory focus of the consolidation process and the complexity and scope of the effect any amendment to the insurance exception may have. While the HRAD Bill provides for review of all exceptions in three years, the ALRC recommends that the Australian Government review the insurance exception in Commonwealth anti-discrimination legislation prior to this time.

6.54 In addition, the ALRC suggests that a review at a Commonwealth level presents a timely opportunity to review similar provisions under state and territory anti-discrimination legislation. This is particularly so in light of the recommendations arising from the Tasmanian investigation, national stakeholder concern and the lack of consistency between jurisdictions. This approach was supported by stakeholders such as Suncorp, which suggested that this offered an opportunity to ‘harmonise the insurance exemption clause across all Commonwealth anti-discrimination laws and nationally’.[68] The ALRC therefore recommends that the Australian, state and territory governments should review insurance exceptions under Commonwealth, state and territory anti-discrimination legislation.

6.55 In the course of reviewing the insurance exceptions, the ALRC suggests that a number of key issues which emerged in the course of this Inquiry should be considered. These include: provision for individuals to request and receive the data on which the decision was based;[69] that the data it is reasonable for insurers to rely upon; and the meaning of ‘other relevant factors’ for the purposes of the exception.[70] Further, the insurance exception requires and assumes that insurers possess data upon which age-based decisions are made. However, in practice insurers may rely on the data possessed by global reinsurers. As a result, this issue should also be considered in the course of the review.

6.56 There are also a range of international developments with respect to insurance that may be of relevance in an Australian insurance context.[71]

Recommendation 6–3 The Australian, state and territory governments should review insurance exceptions under Commonwealth, state and territory anti-discrimination legislation.

Guidance material

6.57 To make certain insurers and consumers understand the operation of the insurance exception, the ALRC recommends that the AHRC should develop guidance material about the application of any insurance exception as it applies to age under Commonwealth anti-discrimination legislation. Such guidance should be developed in consultation with key insurance and superannuation bodies.

6.58 A range of stakeholders supported the development of such guidance material.[72] For example, Suncorp noted that although guidelines are not binding, they could provide the AHRC’s ‘view on the interpretation of the exemption under the Act and relevant case law’.[73] In addition, the ICA indicated it ‘would be pleased to co-operate with the AHRC and industry stakeholders on this matter’.[74] The Tasmanian Anti-Discrimination Commissioner made a similar recommendation.[75]

6.59 By way of example, the AHRC developed Guidelines for Providers of Insurance and Superannuation with respect to the insurance and superannuation exceptions under the DDA. Last revised in 2005, the guidelines provide the AHRC’s view on the interpretation of the exemption under the Act and relevant case law. The guidelines are intended to:

  • clarify the difference between lawful and unlawful disability discrimination in providing insurance and superannuation; and

  • help providers of insurance and superannuation in complying with the DDA, in making decisions in individual cases and in developing broader policies and procedures; and

  • explain what distinctions or exclusions may be reasonable in offering insurances to people with a disability; and

  • explain factors that courts may take into account in deciding a complaint about disability discrimination.[76]

6.60 The ALRC suggests that guidelines about the exception applying to age could: outline how the exception applies; discuss the nature of actuarial or statistical data that may be acceptable for the purposes of the exception; summarise recent case law; clarify the meaning of ‘other relevant factors’; and provide case studies.

Recommendation 6–4 The Australian Human Rights Commission should, in consultation with key insurance and superannuation bodies, develop guidance material about the application of any insurance exception as it applies to age under Commonwealth anti-discrimination legislation.

[41] Insurance Council of Australia, Submission 21.

[42] Reinsurance is a form of insurance for insurers that allows the original insurer to ‘distribute its potential liability by giving off parts of its risk to another insurer (the reinsurer) with the object of reducing the amount of its possible loss’: Thomson Reuters, The Laws of Australia (2009), Vol 22, ‘Insurance’ as at 14 March 2013, [22.1.260].

[43] Tasmanian Anti-Discrimination Commissioner, Volunteers, Age and Insurance (2013), Unpublished Report, iv.

[44] Ibid, 83.

[45] Ibid.

[46] South Australian Equal Opportunity Commission, Submission 70.

[47] Association of British Insurers, British Insurance Brokers’ Association and HM Government, Transparency and Access in Motor and Travel Insurance for Older People: An Agreement on Age in Insurance (2012). The first data was made available in June 2012: Association of British Insurers, Data by Age and Gender <www.abi.org.uk/Facts_and_Figures/Data_by_Age_and_Gender.aspx> at 21 March 2013.

[48] Ibid.

[49] Association of British Insurers, Age and Insurance: Helping Customers Understand Insurers’ Use of Age in Motor and Travel Insurance (June 2012), 5.

[50] Suncorp Group, Submission 66.

[51] Insurance Council of Australia, Submission 94.

[52] See, eg, APRA, Confidentiality of General Insurance Data and Changes to General Insurance Statistical Publications, Discussion Paper (February 2013).

[53] Tasmanian Anti-Discrimination Commissioner, Volunteers, Age and Insurance (2013), Unpublished Report, rec 8.

[54] For example, the Australian Prudential Regulation Authority (APRA) is the prudential regulator and a national statistical agency for the Australian financial sector. APRA is proposing amendment to publication of data provided to it, including making such data non-confidential, introducing group-level statistics and incorporating more detailed industry-level statistics into its publications: APRA, Confidentiality of General Insurance Data and Changes to General Insurance Statistical Publications, Discussion Paper (February 2013).

[55]Age Discrimination Act 2004 (Cth) s 37.

[56] Ibid s 37(3).

[57] This must have occurred within a reasonable period after the request: Human Rights and Anti-Discrimination Bill 2012 (Cth) cl 39(5)(a)(iii).

[58] Ibid cl 107, 140.

[59] See, eg, Anti-Discrimination Act 1998 (Tas) s 34; Equal Opportunity Act 1984 (SA) s 85R(2).

[60] Tasmanian Anti-Discrimination Commissioner, Volunteers, Age and Insurance (2013), Unpublished Report, 90.

[61] Productivity Commission, Review of the Disability Discrimination Act 1992 (Cth) (2004).

[62] Law Council of Australia, Submission 96. See also Brotherhood of St Laurence, Submission 86.

[63] South Australian Equal Opportunity Commission, Submission 70.

[64] Insurance Council of Australia, Submission 94.

[65] Suncorp Group, Submission 66.

[66] Ibid. See also Insurance Council of Australia, Submission 94; Financial Services Council, Submission 89.

[67] Tasmanian Anti-Discrimination Commissioner, Volunteers, Age and Insurance (2013), Unpublished Report, iii.

[68] Suncorp Group, Submission 66.

[69] In the Discussion Paper, the ALRC suggested that, at a Commonwealth level, provision for an individual to request and receive the actuarial or statistical data on which the action or decision was based, as under the Sex Discrimination Act 1984 (Cth), may address some stakeholder concerns in this area. This provision was subsequently incorporated into cl 39(5)(a)(iii) of the HRAD Bill. While a number of stakeholders supported the inclusion of this provision, some were concerned about the ability of an individual consumer to understand the data, as well as the commercially sensitive nature of data. The ICA and FSC suggested that, instead, there be provision for a court or other body to request and receive ‘such information on a confidential basis and for use only in the matter under investigation’: Financial Services Council, Submission 89. See also Insurance Council of Australia, Submission 94.

[70]Age Discrimination Act 2004 (Cth) s 37(3); Human Rights and Anti-Discrimination Bill 2012 (Cth) cl 39(5)(b). The meaning of ‘other relevant factors’ has been considered by the Federal Court in the context of the Disability Discrimination Act 1992 (Cth) in QBE Travel Insurance v Bassanelli, in which Mansfield J held that an insurer cannot pick and choose which material it considers in the context of any ‘other relevant factors’. Instead, it must consider ‘any matter which is rationally capable of bearing upon whether the discrimination is reasonable’ and must not rely on stereotypes in doing so. The Federal Court also confirmed that the onus of proof is on an insurer to qualify for an exemption under the equivalent section under the DDA: QBE Travel Insurance v Bassanelli [2004] FCA 396.

[71] See, eg, the release of United Nations Environment Program Finance Initiative, Principles for Sustainable Insurance (2012). In Europe, the Council of the European Union, Council Directive 2004/113/EC, 13 December 2004 prohibits all discrimination based on sex in the access to and supply of goods and services. However, there is an exemption (similar to the Australian exception) on the basis of actuarial and statistical data provided it is reliable, regularly updated and available to the public. The European Court of Justice held that in the insurance services sector, reliance on the exemption (that is, derogation from the general rule of unisex premiums and benefits) is invalid with effect from 21 December 2012: Association belge des Consommateurs Test-Achats ASBL v Conseil des ministres (Test Achats) (Unreported, ECJ, 1 March 2011). In light of this, the ALRC understands that there may be potential challenges to exemptions from anti-discrimination directives which discriminate on the grounds of age.

[72] National Welfare Rights Network (NWRN), Submission 99; Law Council of Australia, Submission 96; Insurance Council of Australia, Submission 94; Financial Services Council, Submission 89; ACTU, Submission 88; Brotherhood of St Laurence, Submission 86; Suncorp Group, Submission 66.

[73] Suncorp Group, Submission 66.

[74] Insurance Council of Australia, Submission 94.

[75] Tasmanian Anti-Discrimination Commissioner, Volunteers, Age and Insurance (2013), Unpublished Report, rec 9.

[76] Australian Human Rights Commission, Guidelines for Providers of Insurance and Superannuation <www.humanrights.gov.au/disability_rights/standards/Insurance/insurance_adv.html> at 21 March 2013.