Insurers send sex discrimination warning

Brussels directive would mean higher pensions for women, but also dearer motoring
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The Independent Online

The insurance industry hit out yesterday at European Commission proposals that would force women to pay the same as men for life cover and driving their car.

The insurance industry hit out yesterday at European Commission proposals that would force women to pay the same as men for life cover and driving their car.

Efforts to stamp out discrimination are not usually openly derided in this politically correct age, but a new directive from Brussels has got British insurers up in arms.

The social affairs commissioner, Anna Diamantopoulou, set down rules this week so that insurers can not price cover differently for men and women. This will mean higher pensions for women when they retire and lower pensions for men. But women will also have to pay more for insurance cover for things such as driving.

"The insurance industry is opposed to unfair discrimination of any kind, but in this case it is only right that we point out the likely results. The commission has started out with the best of intentions, but this piece of legislation will do no one any good," Mary Francis, director general of the Association of British Insurers (ABI) said.

Gender is used as a factor in assessing a person's risk for car insurance, life insurance and in annuity rates, which are based on life expectancy. The industry is against changing this, saying the consequences of discrimination in this instance are beneficial.

The insurance broker Hargreaves Lansdown also said it was opposed to the new directive, saying it will be "of no significant benefit to consumers and will drive up the overall cost of insurance products".

Tom McPhail, the company's head of research, said: "It claims to be about equal opportunities but it simply create a whole new set of disadvantages. Men will lose out on annuities, women will lose out on car insurance, and overall everyone will lose out." It even believes men could demand higher pension contributions to compensate them for the effect of unisex annuity rates.

Women get favourable treatment in car insurance because they, statistically, are involved in fewer accidents than men. Once rates are equalised, careful women will go into the same insurance pool as boy racers. Diamond, an insurer specialising in car insurance for women, said ruling out the use of statistical evidence on differences between men and women's driving records will mean women paying for reckless driving by men. It says young women could see a 20 to 30 per cent increase in their premiums, while young men could pay 10-20 per cent less.

"Surely it is only fair that young women's better driving is reflected in lower premiums? Lower premiums for young men mean more of them on the roads, driving bigger and faster cars. All that will mean is more death and injury," Sian Lewis, the managing director of Diamond, said.

Ms Diamantopoulou dismissed concerns over the consequences of the changes. "As with past breakthroughs in the field of gender equality, it is being greeted with pessimism. Gender discrimination in the access to and supply of goods and services is unacceptable," she said. "More women are entering jobs than men. This means that more women are entering the market for private pensions, life insurance, critical illness cover and health insurance. They have no option but to enter a market that uses discriminatory practices to set tariffs and benefits."

The difference between annuity rates for men and women can be quite pronounced. Rates at Friends Provident, for example, for a 65-year-old male are 16.5 per cent better than the female rates. This is because women, on average, live longer than men. As an annuity is a guaranteed payment for life, the insurer wants to make sure that it pays out an amount that is not going to be too burdensome if the customer lives until they are 120. Men and women should ultimately end up with the same amount, but women's pay-outs are lower to reflect the longer period over which they will be paid.

According to Hargreaves Lansdown, a switch to unisex annuity rates would disadvantage men more than it would advantage women. It says the average loss works out at 7 per cent to a male pension, while the average gain to a women's pension is 4 per cent.

The ABI calculates that the gain for women is only around £3 per month, which is not enough to offset the increase in premiums they will pay for life and car insurance throughout their life before they retire. This amounts to around £2,500 over a lifetime. "Most women rely on their husband's annuity in retirement as they themselves traditionally have had very low levels of saving. This move will only serve to hit their income as a household," a spokeswoman for the ABI said.

The European Commission, however, believes that to make premiums different based on gender is flawed, as medical and lifestyle issues should account for pricing. "Women pay higher premiums for pensions and the annuities pay out less per year. Men pay higher premiums for life insurance. This is justified by the industry on the grounds that women live longer. There are, however, a number of factors that are not linked to sex that are equally important," Ms Diamantopoulou said.

The insurance industry is moving to more sophisticated techniques for assessing risk based on lifestyle issues. In household insurance, for example, insurers are using digital mapping to pinpoint properties with the highest risk of flooding. It previously relied on postcodes, but some properties within a postcode may never be flooded. The same principle applies with subsidence claims. Critical illness policies are also becoming more prescriptive.

Annuities are now available with better pricing for smokers, because they are likely to die earlier. Medical conditions are taken in to account, as are postcodes, as wealthier individuals live longer than those from less affluent backgrounds.

And one of the primary facts for pricing annuities, used above sex and lifestyle issues, is age. A 75-year-old will not need a pension for as long as 50-year-old, and gets a much higher rate. Even with the increased use of socio-economic factors to price, the insurance industry says gender is a "material fact" in setting insurance rates because statistical evidence used to calculate and price risk shows a difference between men and women.

"This move is a backward step on the progress made in pricing insurance risk. Insurers are now taking on more and more information to price their risk most efficiently. Gender is a very important factor in that. Everyone is living longer than before, but women are still living longer than men. Without the differentiation in pricing, you end up with a cross-subsidy based on an average lifespan. Insurers will have to price their products more conservatively because they will be missing a vital piece of information," Tony Filbin, director of retirement income at Legal & General, said.

The directive has to go to the European Parliament before it can be passed in to law. But it is unlikely to come into effect until 2013, given four years for the legislative process to take place, followed by a six-year implementation period.

Hairdressers, meanwhile, can continue to charge women and men different prices. The EC has judged the skills required for delivering men's and women's haircuts are sufficiently different for each sex to justify the price.

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