Perspective News

The European Court of Justice (ECJ) has ruled that insurers can no longer use gender as a factor when calculating premiums. Europe’s Gender Directive outlawed gender discrimination in the UK from 2008; however, the UK was granted an opt-out when determining insurance premiums. This opt-out has now been ruled as discriminatory and against the principle of equality, even though gender appears to play a significant part in the quantity and size of insurance claims.

Women cannot be offered lower car insurance premiums than men, and the cost of annuity and life insurance premiums will change. The new rules will come into force in December 2012, although premiums are likely to change before then. Insurers can still discriminate on age and rates will still be affected by additional factors such as medical conditions.

Principal losers from the ruling will be young female drivers and men who are approaching retirement. At present, young women pay less for car insurance because they are statistically less likely to have accidents, and therefore they make fewer claims. Meanwhile, annuity income for men is often higher because women tend to live longer than men and therefore receive a smaller annual pension from an equivalent pot of money. Based on the ruling, annuity rates for men and women will draw level: men’s annuity income will come down and women’s income will increase.

The Association of British Insurers (ABI) described the ruling as “disappointing”; the insurance industry’s trade body emphasised its belief that the scope to take gender into account allows a greater level of accuracy in pricing, and went on to raise concerns that the alterations to the price of premiums might deter people from taking out vital insurance policies. The National Association of Pension Funds also described itself as “disappointed”, highlighting the “clear difference” between men and women in terms of longevity, and warning that the ruling would negatively affect retirement incomes.

Research commissioned by the ABI in the autumn of 2010 indicated that, if gender were removed from the equation, men approaching retirement could experience a reduction in annuity rates of up to 8%, while rates for women approaching retirement could increase by 6%. For life insurance, rates for women could rise by up to 20%, while men’s rates could fall by 10%. Meanwhile, young women could be forced to absorb an average rise of 25% in their car insurance premiums.

The contents of this article should not be construed as advice and do not necessarily reflect our views. Independent Financial Advice should always be attained in order to assess your own individual circumstances.