Insurance gender ruling

Men and women, young and old, are set to notice significant changes to the cost of various types of insurance following a European court decision.

The reason is that the European Court of Justice has decided that insurers will no longer be allowed to take the gender of their customers into account when setting their insurance premiums.

At present, insurers consider gender because – for example – there is a difference between the sexes in life expectancy and the likelihood of road accidents.

What is going to happen?

Insurers will no longer be able to charge different premiums to men and women because of their gender following a ruling by the European Court of Justice (ECJ).

However, this will not come into effect until 21 December, 2012, to give the industry time to prepare for the change.

The theory from the ECJ was that taking customers’ gender into account contradicted laws on discrimination.

In practice, the requirement for unisex premiums is likely to affect the cost of some types of insurance, notably car insurance, life insurance, and the cost of an annuity – a regular pension income.

What will this mean for insurance premiums?

Lots of figures have been thrown around by groups interested, and at times angry, about this ruling.

The truth is, we do not know exactly how much premiums will change, because insurance companies will have to sit down and calculate exactly how they will change prices so not to break the rules.

But many people are likely to notice a change the next time they renew, or shop around for better, insurance.

How will drivers be affected?

The most obvious shift is likely to be seen for young drivers.

Consumer groups will be watching closely to see where – within this range – companies will price a unisex premium.

There seems to be a general view that young men’s premiums will fall a little, perhaps up to 10%, but young women’s will rise more, perhaps up to 30%.

AA Insurance says an annual car insurance bill for a young woman will go up by £400.

Will the cost of a regular pension income be affected as dramatically?

Probably not, although this may be partly because prices were already being changed in anticipation of this ruling.

Annuity expert Billy Burrows, of the Better Retirement Group, says that the industry will adapt quickly to the change.

He estimates that the annuity, or regular pension income, received by a man will fall by about 2.5% and for a woman will increase by 2.5%.

“These figures are only an estimate and we await concrete figures from the insurance companies,” he says.

“It is too early to say what effect this will have on the future for annuities but I expect that annuities will continue to be the best option for most people at retirement.”

The majority of annuities are bought by men, and Mr Burrows says that typically a standard annuity bought for £100,000 by a man at the age of 65 will bring him an annual income of £6,633. Under the new rules, a unisex annuity will bring him £6,479 a year.

For a 65-year-old woman, who has bought an annuity for £100,000, her annual income will rise from £6,322 to £6,479.

However, the Association of British Insurers (ABI) estimates a bigger change in annuity rates and many experts are expecting volatility in rates in the coming weeks.

What about life assurance?

On average women live longer and so currently pay less for life assurance than men.

But following the ruling, the ABI estimates that men could see a 10% fall in costs, while women’s rates could rise by as much as 20%.

What other factors will affect premiums?

Obviously, more than just gender is considered when setting an insurance premium, and this will remain the case.

Other so-called “risk factors” will still affect the thinking of, and pricing by, insurance companies.

For example, motor insurance will be higher for the driver whose car has a more powerful engine, and medical insurance could cost more for those with pre-existing conditions.

The age of the customer can also still be part of an insurance company’s thinking. The rules do not prohibit discrimination on age as they do on gender.

What will the ruling mean for the insurance industry?

In the short-term it could mean a lot more paperwork for the companies and their customers.

The ABI says that, during the transition period, insurers will need to change their policy documents, contact their customers, and update their computer systems.

They must also ensure brokers are giving out the correct price information and marketing is correct.

In the longer-term, they will have one less variable to consider when setting prices, but it remains to be seen if this will cut the industry’s workload at all.

More information in www.uk-homeinsurance.com.

Related posts:

1. ECJ ruling ends cheap car insurance for women