New gender ruling could see insurance costs rocket

The European Court of Justice (ECJ) has revealed that insurers will no longer be able to use gender when setting insurance premiums – a move which will see costs rise for consumers.

The ECJ claims using gender as a risk evaluator is discriminatory and unlawful.

Industry experts have been slamming the ruling, which will come into force on 21 December 2012. However, they welcome the fact that it won't be effective straightaway, with one industry expert calling the transition period "a victory for common sense".

Previously the insurance industry had been able to opt out of the European Union's 2004 Gender Directive, but the new ruling means that from end of 2012 insurers will no longer be able to charge different prices or offer different products to men or women because of their sex.

This is likely to inflate insurance premiums across the board as the move could cost the insurance industry close to £1 billion collectively, according to think tank Open Europe.

While some consumers will benefit from the changes, experts believe that those benefits will be minor compared to the added cost the majority of policyholders will face.

Peter Chadborn, director of Plan Money, says: "It is hugely disappointing that this illogical ruling has been upheld but I'm pleased that the industry has been given breathing space to adjust properly.

Also commenting on today's announcement, Kevin Carr, chief executive of the Protection Review, says: "Comprehensive insurance products can only exist if risks can be priced. If other factors such as age and disability were also to be outlawed, we would be left with highly expensive 'one price fits all' products which come with a long list of exclusions."

It's not expected that existing policyholders will be affected by this ruling. However, if your policy is due to expire it's worth looking for a new policy before the rules come into effect.

"There will be instances when consumers should consider the merits of reviewing their cover before it expires. For females, if your car insurance expires in December 2012 you might be better off reviewing in November; you'd pay one month's extra premium but may be better off for the next year," explains Chadborn.

So how will the ruling affect you?

Motor insurance

Currently, young male drivers pay higher premiums as they are regarded as riskier, with the average premium for comprehensive cover for 17–20 year–old men £2,976 compared to £1,694 for women. This represents a difference of 75%. Young drivers will therefore be worst hit following the ruling.

"On the basis of averaging out the most recent premium index data, 17-20 year old women might anticipate rises of around 40% if insurers equalised rates, with the increases being much higher still if, in the short term, insurers just moved female rates to equal male rates," says Duncan Anderson, a motor insurance actuary.

For example, a 17–year–old female driver will have to pay an extra £4,300 in insurance premiums by the time she is 26 as a consequence of the ruling, according to Open Europe. Conversely, the think tank calculates that a male driver would save £3,250 over the same period of time.

For more read: Five legal ways to cut your teenage driver's insurance bill

Simon Douglas, director of AA Insurance, says the announcement has come at a time when consumers are already struggling with rises in claims costs:
"Following the Court's Judgement, I fear that many insurers will find the young driver market too risky and pull out altogether.  That would reduce competition, leading to higher prices."


Speaking on the impact to the annuities industry, Tom McPhail, head of pensions research at Hargreaves Lansdown, calls the ruling a "seismic event" that will reshape the retirement landscape:

"It is now imperative that every investor shops around with their pension fund at retirement; if they don't they risk ending up with a homogenised standard–issue annuity which is almost certain to be a poor deal for them."

At the moment, women receive lower annuity rates because their life expectancy is longer than men's and they therefore have to receive payment for longer. McPhail expects annuity rates will even out with women benefiting from better rates. However, they will still be worse than the current male rates and, as a result, he expects that insurers will have to underwrite more policies on an individual basis.

Ros Altmann, director general of Saga, thinks that the middle classes will potentially be worst hit because current rules allow anyone with less than £18,000 in savings to opt out of getting an annuity.

"The worst affected are likely to be those with moderate amounts of pension savings, who do not have enough money to afford more flexible pension options but have saved more than the minimum £18,000 which would allow them to avoid buying an annuity."

Life insurance

For life insurance, men taking out a policy after December 2012 can expect higher premiums.

"No immediate action will be necessary for anyone with life assurance, however; if you have a policy which expires after December 2012, which you think you might like to replace when it expires, it would be worth replacing the policy prior to December 2012," advises Chadborn.

How to buy life insurance

Private medical insurance

The majority of private medical insurers don't have different premiums for gender and where it is taken into account the difference in price is minimal, says the Association of Medical Insurance Intermediaries (AMII).

"However, there are a couple of insurers that have used gender pricing in the past and so have older policies on the books that would need to be adjusted from 21 December 2012. For those consumers, they should seek specialist advice on alternative options within the market, especially if continuous cover is required for previous medical conditions," says AMII spokesperson Lindsey Joseph.

Private medical insurance: is it worth the cost?

Your Comments

This is ridiculous. Yes, I am a woman, but my reasoning is not due to the fact my insurance may increase. This is ridiculous because insurance is based on risk. If feales are lower risk then the premiums should be lower. It is not about sexism. Does this mean that next they will use the ageism row?? Older drivers should not receive lower premiums just because they are older, right? This is a joke and is just another instance where the European courts are sticking their massive, bureaucratic noses into the UK's home affairs. They should keep those noses out.

Seems a bit like Political Correctness gone mad. Insurance companies aren't listening to the word on the street, or what the papers say, when they come up with premiums - although I wonder if they use the "what the market will bear" point of view?

Anyway, they almost certainly use statistics to determine the risk of something. My wife used to work in insurance, apparently - yes women don't crash as often as men, but when they do the crashes are usually bigger.

Women typically have smaller muscles then men, but are more organized.

There are differences between the two sexes!

I think the result of this ruling is going to be as bad as the experts think.

If the insurance industry could make it cheap for women, why can they not just increase womens cost say 50% and reduce mens by 50%, rather than increasing womens to the same as Mens?

Surely, there is a total risk exposure out there in the industry, which is being covered by premiums and delivering healthy margins to the insurers. The end effect of increasing the female premiums is going to be more margin for the insurers. Then competition will determine how much margin is then taken by the insurer and how much is shared with the customer.

The only winners here are the insurers.

All insurance is based on actuarial risk. If we are going to even things out and go for equality then we need to make car insurance the same as well for every region of the country! Well, yes, it would be stupid to make motor insurance out in the sticks the same as the roughest part of London, wouldn't it. Same goes for gender and age. Young men tend to drive fast, drink a lot and mess about with their mates. Nothing new there but it very obviously makes them a greater risk for insurers in the real world. Still I suppose we women may loose out badly insuring our cars but at least we have the consolation that because of this we will win out quite a lot on annuities/pensions so maybe we have the last laugh.