European sex ruling on car insurance should not drive women over the edge
Costs may not soar after gender pricing ban.
Saturday 05 March 2011
T he European Court of Justice's decision to ban gender pricing on insurance- related products prompted a lot of cheap headlines this week, but will it really impact on us all in terms of higher insurance costs and lower annuity rates? Certainly it seems that some insurers see the move as a chance to boost profits.
Announcing his firm's results on Wednesday – the day after the EU ruling – Henry Engelhardt, chief executive of the Admiral Group, admitted: "As an insurer I'm pleased. We will raise rates for young women: we won't bring them down much for young men. That means more profit."
Other insurers have been more circumspect about the impact. Specialist women's insurer Sheila's Wheels said: "The ruling will affect millions of women across the EU from 21 December 2012, causing premiums to rise artificially in a way that no longer truly reflects women's risk as drivers or the cost of their claims."
Meanwhile Adrian Brown boss of More Than – owned by RSA – said: "The judgment flies in the face of common sense. It is completely disadvantageous to the very people it was intended to protect and prevents insurers from using a legitimate rating factor. Once again consumers are going to have to pay the price for an illogical change in the law."
If you believe the insurers, the cost of cover for some women drivers could climb by an average 25 per cent, or as much as 50 per cent for some. Meanwhile men will also be hit as their pension payouts could be hit by as much as 10 per cent, the industry warns. At present men get higher annuity rates than women as their life expectancy is shorter.
But will the impact really be as shocking as the industry is predicting? The truth is that by the time the ruling comes into effect in December next year insurers will have had time to find ways to absorb the new rules while remaining competitive. The ruling affects life insurance and medical cover as well as motor polices and annuities, but all are products that are largely bought on price and, crucially, they are subject to individual pricing.
In other words, if you are a safe driver you should still be able to get lower-priced cover, irrespective of whether you are male or female. The new world of equality in pricing should, in short, force insurance companies to calculate premium rates – or, indeed, annuity payouts – on a range of provable factors without falling back on easy gender stereotyping. And that's as it should be because your gender is not the defining reason why you may have fewer motor accidents or a longer life.
What is a sure thing is that insurers will use the changes to reprice their products and it looks likely that they will err on the side of caution. That will mean higher car cover prices for women, but not necessarily lower premiums for men. Meanwhile men's annuity payouts will fall, but women's may not rise by much at all.
The question is, what can you do to ensure the new rules don't hit your pocket. Here's a brief look at how the ruling affects the main products.
The ruling is likely to hit women drivers aged 25 or under. They are the group who, statistically, have fewest and least expensive accident claims. Male drivers under 21 are twice as likely to have an accident than a female under 21, according to the British Insurance Brokers Association. Further, it says the average 18-year-old male claims cost is £4,400 compared to the average 18-year-old female claims cost of £2,700.
"Unisex rates will have to apply for motor insurance with the likelihood of an increase in premiums for females which could typically be up to 25 per cent but in some cases more than 50 per cent," warns Steve Foulsham, BIBA technical services manager. "However it's unlikely that premiums for male drivers will reduce much as their risk is still considerable."
Analysis from comparison site Moneysupermarket.com shows that premiums are rising by 44 pence per day on average. Currently, men pay an average of 30 per cent more than women, however the figures show the cost of premiums for female drivers has already been rising at a faster rate than for men, especially among the younger generations.
Over the past year, premiums for women aged between 17 and 25 have climbed 34 per cent on average to £1,002 or by 70 pence per day. At the same time, the cost of cover for men of the same age has risen just 12 per cent.
With the cost of cover on an upward trend, insurers that can find other ways to reduce prices will gain a competitive advantage. That will increase the importance of comparing different companies' quotes. Meanwhile young women, in particular, may need to look more closely at other ways of cutting the cost of cover, such as taking a higher excess, or finding a secure lockable garage to park a car.
Pensions is the area where the EU ruling may actually have most impact. At present, people must use part of their pension pot to buy an annuity, which gives them an income for life. As men have a lower life expectancy, payouts are traditionally higher because the company making the payout knows they are likely to be for a shorter time.
The ruling could see men's payouts reduce by between 5 per cent and 10 per cent while women's payouts could climb by 2 per cent to 3 per cent. However one provider, Living Time, has already moved to unisex annuity pricing and others could follow before they are forced to in December 2012.
The move is welcomed by the TUC. "Women tend to have much smaller pension pots as they earn and save less over the course of their careers, so this will end the extra discrimination in the annuity market," points out its assistant general secretary, Kay Carberry. "Many more men buy annuities and they tend to have bigger pension pots, so there is no need for men to lose as much as women gain by the change."
Women currently pay more than men for life insurance, while men pay less for income protection. There's good reason for that, according to Matt Morris, senior policy adviser at Lifesearch, a life insurance specialist. "It is essential for insurers to use gender to calculate risk based on solid actuarial evidence and statistics. It is price differentiation, not discrimination, as it is not a decision that comes down to the whim of an individual."
He predicts that the EU ruling will have an adverse affect on people buying life cover. "Prices will go up across the board as insurance companies try to build in the new risk," he says. "It is very unlikely premiums to meet in the middle because there will be huge costs to the industry of re-pricing and updating their systems so everyone will end up paying the higher rate. Everyone loses."
"The vast majority of private medical insurers don't have different premiums for gender and for those that do, the difference in premium is not significant," says Lindsey Joseph of the Association of Medical Insurance Intermediaries.
"However, there are a couple of insurers which have used gender pricing in the past and so have older policies on the books that need to be adjusted from December 21, 2012."
Joseph advises those affected to get expert help. "They should seek advice on alternative options, especially if continuous cover is required for previous medical conditions," he says.
How did we get here?
* The campaign to stop insurers using gender as a way of pricing insurance-related products began in Belgium. A consumer organisation there known as Association belge des Consommateurs Test-Achat questioned the rule that allowed "proportionate differences" in premiums where sex is used as a "determining factor".
The Belgian consumer body argued that, instead, cover should come under the European Gender Directive which prohibits discrimination on the grounds of sex. Test-Achat took its case to the European Court of Justice which asked Advocate General Juliane Kokott, pictured, to examine the issue. She published her view last September – and it wasn't one that pleased UK insurance companies.
Ms Kokott said it was inappropriate to link insurance risks to a person's gender. In fact she went further and declared it illegal under EU law. The key relevant document is the Charter of Fundamental Rights, which was part of the Treaty of Lisbon on 1 December 2009. It says that discrimination "on any ground" is illegal.
On Tuesday the European Court of Justice agreed and ruled that taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination. The Court banned the practice from December 21, 2012. The date was chosen as it is the fifth anniversdary of the introduction of European Union: Directive 2004/ 113/EC1, which prohibits all discrimination based on sex in the accessto and supply of goods and services.
The Court pointed out that, under Article 8 TFEU, the European Union is to aim, in all its activities, to eliminate inequalities and to promote equality between men and women. But, depending on how UK insurers react when repricing their products, the blow for equality could yet leave women forced to pay higher car insurance premiums and men accept lower pension payouts.
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