Cheaper insurance for women ruled unfair

European judges rewrote the rule book for insurance companies today by banning risk assessment based on gender.

Using differences between men and women as a risk factor in setting premiums for car and medical insurance and pension schemes breaches EU rules on equality, declared the European Court of Justice in Luxembourg.

The verdict - which applies from December 21 2012 - will force changes in the current standard practice across Europe of basing insurance rates on statistics about differing life expectancies or road accident records of the sexes.

It was immediately condemned as "utter madness" and a "setback for common sense" by Conservative MEP Sajjad Karim.

The Association of British Insurers estimates that the decision will actually reinforce price discrimination, with women drivers under 26 in the UK facing a 25% rise in car insurance rates, with a 10% drop in rates for fall for men.

Until now, discrimination in setting insurance rates has been explicitly permitted under EU equal treatment rules, "if sex is a determining risk factor... substantiated by relevant and accurate actuarial and statistical data".

But today the judges followed advice from the court's Advocate-General that "higher-ranking" equality provisions set out in the Charter of Fundamental Rights of the Lisbon Treaty must now apply.

Insurance companies can carry on discriminating between the sexes until December next year - the time when current EU equality rules are due to be reviewed.

The delay will also give insurance companies and risk assessors time to change the template for risk assessment by ignoring traditional statistical gender-based evidence.

Today's judgment said: "Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination. The rule of unisex premiums and benefits will apply with effect from 21 December 2012."

The judges pointed out that the Lisbon Treaty, which includes the Charter of Fundamental Rights, aims "in all its activities, to eliminate inequalities and promote equality between men and women".

However, the use of "actuarial factors related to sex" was widespread in the provision of insurance services at the time when the EU's equality rules were adopted, and it was accepted that changing the law to bring in "unisex premiums and benefits" should be done gradually.

But until now there was no time limit set for when the current exemption from equality for insurance premium assessment should expire.

The judgment concluded: "Consequently, the court rules that, in the insurance services sector, the derogation (exemption) from the general rule of unisex premiums and benefits is invalid with effect from 21 December 2012."

The leader of Britain's Conservative MEPs, Martin Callanan, said: "The last Labour government is to blame for this.

"By signing us up to the Charter of Fundamental Rights in the Lisbon Treaty they have opened the floodgates to nonsense court rulings like this one.

"Yet again we are paying dearly for the utter mess bequeathed to us by the last Labour government.

"Had Labour given us the referendum on Lisbon that they promised, women would almost certainly not be facing devastating hikes in already sky-high motoring bills."

Fellow Tory MEP Mr Karim said: "This ruling is utter madness. It is a setback for common sense.

"It is a statistical reality that young men have more accidents than women so it should be reflected in their premiums.

"Once again we have seen how an activist European Court can over-interpret European human rights legislation.

"The EU's rules on sex discrimination specifically permit discrimination in insurance if there is data to back it up.

"Unelected judges have overruled the will of democratically elected MEPs and governments; is it any wonder people are do disenchanted with the EU?"

He went on: "Boy racers will now have even more money to buy unsafe fast cars, whilst safer drivers will be hit hard in their insurance premiums.

"This is a victory for boy racers and a major blow for both democracy and careful women drivers."

AA Insurance said it was disappointed with the decision but welcomed the delay until December next year.

AA Insurance director Simon Douglas said: "The use of gender in calculating insurance risk has been a fundamental principle of the UK's risk-based motor insurance structure for decades, although it has been a thorn in the EC's side since 2002.

"However, it's important not to confuse equality with fairness.

"The calculation of car insurance premiums based on risk is by definition fair, but is incompatible with gender equality."

He went on: "Young women have, until now, paid car insurance premiums that are typically up to 50% cheaper than men. In the short term, they will see their premiums rise significantly while those for young men are likely to fall a little."

Mr Douglas said he believed insurers would quickly start to adjust their pricing in a way which put greater emphasis on the individual risk presented by motorists and that premiums would start to settle down.

But he warned that some insurers might pull out altogether from the young driver market which would reduce competition and lead to higher prices.

Julie Owens, of moneysupermarket.com, said: "With this ruling we will now see a fundamental and significant change to the UK insurance market.

"This move will be detrimental to UK consumers, and, in the case of car insurance, premiums for female drivers will certainly increase sharply as a result.

"In addition, with record price increases to car insurance premiums, the ruling means it is likely many more motorists will be forced off the road, or even worse, be more tempted to drive without any cover at all."

UK Independence Party MEP Godfrey Bloom accused the European Court of "social engineering".

"The EU judges do not understand that insurance premiums are not random chance but risk-assessed," he said.

"Women drive more safely than men, particularly in the younger age group, and men do not live as long as women, which is a simple actuarial fact of life.

"This is simply social engineering, which will lead to higher prices for everyone - the law of unintended consequences.

"Risk assessment is simply part of the international insurance industry's whole raison d'etre."

Open Europe, the think-tank campaigning for EU reforms, said UK insurance providers would now have to raise an estimated extra £936 million to cover themselves against "new uncertainties" created in the market when the equality rule changes.

The organisation said eliminating gender statistics from insurance calculations will cost young women drivers an average extra £4,300 more between the ages of 17 and 26 - with an actual saving of £3,250 for men in the same period.

In a "worst-case scenario", women drivers' cumulative insurance costs could be as much as £9,300, says the organisation.

Open Europe research director Stephen Booth said: "This ruling has pushed anti-discrimination legislation beyond the realms of all common sense. Unaccountable EU judges have ruled to overturn long-held national rules and increased costs for consumers in the process. To do so in the name of equality just adds insult to injury."

The Association of British Insurers (ABI) said insurers would now be working hard to remain competitive.

"It will be crucial to ensure this news does not put people off having vital insurance that protects them against accident or illness, or provides an income in retirement," said Maggie Craig, ABI's acting director-general.

"Insurance remains good value for people and not all customers will be equally affected as the use of gender can vary significantly between products and different companies."

ABI added that not only car in insurance premiums will change.

For annuities, men approaching retirement could face an 8% cut in rates, while those for women approaching retirement would rise by 6%.

Similarly for life insurance, men could see a 10% fall in costs, while women's rates could rise by as much as 20%.

Adrian Webb, head of communications at Sheilas' Wheels insurance company, said: "We have always insured men but most males simply aren't attracted to our brand and we don't see this changing.

"Despite this ruling, we will continue to market to women and to celebrate our pink brand because it does not prevent female-focused marketing.

"Over the course of the transition, we will make the changes necessary to comply but the huge proportion of women already with us will help us to maintain our highly competitive position."

Kevin Clinton, head of road safety at the Royal Society for the Prevention of Accidents, said: "As far as young drivers are concerned, there is a massive gender difference in risk on the road and the likelihood of making an insurance claim.

"It's not yet clear what the effects of this ruling will be on road safety. There could be a variety of consequences.

"If premiums for young female drivers rise, but stay the same for young male drivers, it's difficult to see any road safety benefit."

He went on: "However, on a positive note, if insurance premiums for young male drivers fall, this might encourage those who currently drive uninsured (because they find the cost of insurance prohibitive) to take out insurance, which would be a good thing.

"On the flip side, some young female drivers might be discouraged from insuring their vehicles if the cost of their premiums rises significantly.

"The real story of this ruling is how unfair it could be for young female drivers if their insurance premiums rise despite their crash risk being so low compared to young male drivers."

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