By Lois Avery
Men and women will pay equal insurance premiums after the EU ruled that gender-based pricing is against European law.
The European Court of Justice in Luxembourg announced on Tuesday (1 March) that a new law will prevent insurers from using gender when calculating insurance premiums.
At the moment women pay less for motor insurance because, statistically they’re less of a risk on the road. Likewise for life insurance, men pay more because statistically they die younger.
But judges have now ruled that using differences between men and women as a risk factor in setting premiums for car, medical and life insurance, as well as annuities, can no longer be allowed.
No immediate panic
Insures were told by the EU decision makers that they have until 21 December 2012 to implement the changes, but at the moment it is unclear whether insurers will raise their premiums earlier or how the changes will be enforced.
Industry estimates suggest that, for motor insurance, women under the age of 25 could see an average rise of 25 per cent to their premium. For annuities, men approaching retirement could see an 8 per cent reduction in annuity rates, while rates for women approaching retirement could rise by 6 per cent. And for life insurance, women could see an increase of as much as 20 per cent in the cost of cover, while men could see a fall of 10 per cent.
How will insurers calculate your premiums between now and 2012?
Until the gender ruling becomes law in 2012, insurers have a lot of work to do in order to find a new pricing model on which to base insurance premiums.
So, for example, certain vehicles typical with younger drivers could become more expensive to insure. Or age could be considered a more important factor but this is something insurers will now have to decide.
What now?
Maggie Craig, acting director general of the Association of British Insurers, says providers will spend the next 20 months amending policy documents, contacting customers with new information; updating and changing computer systems; ensuring insurance brokers have the right pricing information; adjusting insurance renewals, and updating all sales material.
She said: “Insurers will now study this judgment carefully to manage negative effects for customers. 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.
“Each company will have to respond to the ban in the way they feel is in their customers' interests.
"Adaptation during this transition period until December 2012 will be challenging, but all insurers will be doing everything they can to ensure as smooth a change as possible for customers.”
To compare the current average premium prices for men versus women by region visit Confused.com's new online car insurance premium calculator at www.confused.com/ecj-ruling where you can get a feel for how men and women’s premiums differ.
As well as causing chaos for the car insurance market, the ruling also effects other areas of the insurance industry, most notably; life insurance and annuities.
Annuities – good news for women
Second to car insurance, retirement income will see the biggest changes following the EU ruling.
Because men have a shorter life expectancy than women they have, up until now, been able to benefit from larger annuities when they convert their pensions. But now annuity rates will have to equalise, so women are likely to get a better deal on their retirement income.
Steve Lowe, external affairs director at Just Retirement, said the annuity industry was well prepared for this outcome and it could benefit the retirement sector: “Just Retirement had done the necessary work and were ready to go should an immediate response have been required. Having clarity of the ECJ ruling will now allow financial advisers and their clients to plan for their retirement with more certainty. It's good for them that we have avoided a knee-jerk response,” he said.
Life insurance
Life insurance is another area that’s expected see plenty of changes as a result of the decision. Men currently pay more for life cover because they’re life expectancy is shorter; therefore a payout is more likely at an early stage. But following the ECJ decision this will have to change. So women are likely to see higher life insurance premiums from 2012.
What do you think about the decision? Is it fair? Tweet me with your opinions @confusedlois or email me
lois.avery@confused.com
.
