Keep down the cost of your premiums when sexes are equal

The European court's ruling will hurt all of us. Chiara Cavaglieri finds ways to limit the damage

Striving for equality is rarely a cause for disquiet, but after European judges ruled last week that insurers must not discriminate on the basis of sex when pricing their products, experts warn that consumers across the board will be worse off.

The European Court of Justice (ECJ) has banned risk assessment based on the differences between men and women, declaring that it breaches EU rules on equality. This verdict will not apply until 21 December 2012 but it will put a stop to firms basing car insurance premiums and annuity pension products on gender-based road accident records and life expectancies.

"We are going to see insurance companies looking for other ways to work out how much income they can afford to pay out. Ultimately, this will lead to more accurate, individual pricing but it will probably be slower and more expensive to carry out," says Tom McPhail, the head of pensions research at Hargreaves Lansdown.

At the moment, young men can expect to pay far more for car insurance because they are statistically more likely to make a claim, while on the pensions side, men tend to get a higher annuity income because they have a lower life expectancy than women. Some might hope that removing gender discrimination will see prices fall to meet somewhere in the middle, but expectations are for the opposite.

Last autumn, the ABI commissioned research to highlight the possible impact of removing gender from risk assessment and found that women under the age of 25 could see an average rise of 25 per cent to their motor insurance premiums, while Steve Foulsham from the British Insurance Brokers' Association (Biba) predicts that premium increases could be even higher for women.

"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. However it's unlikely that premiums for male drivers will reduce much as their risk is still considerable," he says.

Specialist female insurers in particular will be forced to make big changes and although Sheilas' Wheels has stated that it has no intention of changing its marketing angle and will continue to offer targeted benefits such as handbag cover, there can be little doubt that insurers with a female focus will become more expensive.

Martin Shaw, the chief executive of the Association of Financial Mutuals, has a more optimistic view than most, predicting that the impact of the ECJ's decision will be both short term and limited.

"Markets such as motor insurance and annuities are competitive and, over the longer term, insurers will look to develop more sophisticated techniques on which to base their assessment processes. In practice, this will mean that aspects such as health and lifestyle will become more important as insurers look to calculate risk by another means," he says.

However, drivers are already struggling with average car-insurance premiums rising by almost £650 to £1,332 in the past three years and if insurers cannot use gender as part of their risk assessment, this upward curve could continue at a rapid pace for both sexes.

Experts have similarly dour predictions for both life insurance and annuity rates. Presently, women typically pay less for life insurance due to a longer life expectancy but more for critical illness policies, while men enjoy a higher pension income because they are expected to have fewer years in retirement.

The ABI study suggests that once the ECJ ruling takes effect, men could benefit from a fall of 10 per cent in the cost of life insurance cover and women could see a rise of as much as 20 per cent. Conversely, for annuities, men could see an 8 per cent reduction in rates, while women approaching retirement could increase their retirement income by 6 per cent.

Despite these predictions many experts say that the inherent costs for such large scale changes means that it is far more likely that both sexes will lose out. Any marginal decrease for men's life insurance will also be cancelled out by increased critical illness cover and vice versa for women.

"Prices are not going to meet in the middle. Men will probably gain slightly for life insurance and women for critical illness cover, but the overall picture for consumers is worse because any premium increases will be greater than the decreases. I don't really see who wins out of this," says Matt Morris, of comparison service Lifesearch.

Annuity providers are equally as unlikely to be generous so any increase to women's annuity rates will be marginal and as the vast majority of annuities are purchased by men with partners who rely on that income for their own retirement, the EU decision once again seems to benefit no one.

With prices taking a turn for the worse, consumers are urged to look for other ways to cut costs and keep premiums at an affordable level. For retirees, getting the best possible annuity rate is already of huge importance and this means taking the open market option rather than sticking with the rates offered by their pension providers.

Picking the right type of annuity is also crucial when trying to keep costs down. For example, an impaired-life or enhanced annuity provides a higher-than-average income for those with particular health problems and could pay out up to an extra 40 per cent.

"The key message for investors is that they absolutely must shop around as they approach retirement, to make sure they enjoy the best possible terms from their pension funds," says Mr McPhail.

Health is also one of the biggest factors affecting life insurance premiums so losing weight and quitting smoking can save policyholders as much as 50 per cent. Joint cover for couples is also cheaper than separate policies and opting for family income benefit, which pays out in tax-free instalments rather than in one lump sum, can also be around 35 per cent less than standard policies.

Tweaking the term and size of the policy will also affect the premiums considerably so it's important for policyholders to review the level of cover regularly to see if it can be reduced when circumstances change.

For motorists, increasing excess levels, taking advanced driving courses, reducing mileage and leaving the car in a garage or driveway will all help to lower premiums. In the longer term, as insurers look to more inventive ways to set premiums, we may even see more motorists keeping premiums low by altering their driving habits. For example, specialist providers such as Coverbox and Insurethebox use tracking technology to charge motorists based on the distance they drive, when they drive and even how they drive.

"In the longer term, drivers will be looking to insurers to develop more innovative solutions. Telematics based 'pay-as-you-drive' products could be further developed to allow insurers to more accurately match a driver's insurance premium to their actual risk," says John Miles from comparison site Gocompare.com.

Expert View

Tom McPhail, Hargreaves Lansdown

"Over the next two years, we will see insurance companies re-price their annuities to bring them into line with what Europe wants. If you're male and have been holding off from buying an annuity, now maybe the time to finally decide what to do."