Tuesday 1 March 2011

BBC News - Insurance and pension costs hit by ECJ gender ruling

1 March 2011 Last updated at 15:18

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Insurance and pension costs hit by ECJ gender ruling

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Twins Emma and Nick Lane were quoted very different prices for car insurance

Insurers cannot charge different premiums to men and women because of their gender, the European Court of Justice (ECJ) has ruled.

The decision means that women can no longer be charged lower car insurance premiums than men, and the cost of buying a pensions annuity will change.

The change will come into effect in December 2012, although customers could see premiums alter in the interim.

Representatives of the insurance industry said they were disappointed.

The court was ruling on a challenge by a Belgian consumer group Test-Achats.

It had argued that a current exemption for insurers contradicted the wider European principle of gender equality.

"Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination," the ECJ said.

The requirement for unisex insurance premiums and benefits will start on 21 December 2012, giving national governments and the European insurance industry time to adjust.

Different risks
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Simon Douglas of AA Insurance said insurance prices for young drivers could rise

For car insurance, women are generally a lower risk to insure than men but will, in due course, have to pay the same premiums.

The British Insurance Brokers' Association (BIBA) said currently the cost of the average car claim by an 18-year old man was £4,400, while that for an 18-year old woman was £2,700.

"The ruling will have a significant effect on the insurance industry which has used the system of risk based pricing to award discounts to lower risk drivers like young females who are statistically safer drivers," said Graeme Trudgill of BIBA.

"The industry will have to change its model and effectively females will now pay a cross subsidy for males on their insurance premiums."

Simon Douglas of AA Insurance told BBC News that the decision could add about £400 to the annual cost of car insurance for a young woman.

Continue reading the main story

Potential premium changes

  • Women aged under 25 could see car insurance costs rise by up to 25%
  • Men could see an 8% reduction in annuity rates, but women could see a 6% rise
  • The cost of life assurance could increase by 20% for women but fall by 10% for men

Source: Estimates from ABI commissioned research in Autumn 2010

"Particularly for women under 30 where the difference is most extreme, they currently pay about half what a man would pay," he said.

"We could see their prices go up 25-30% and men's premiums could fall by about 10%."

Maggie Craig, acting director general of the Association of British Insurers (ABI), said: "This gender ban is disappointing news for UK consumers and something the UK insurance industry has fought against for the last decade.

"The judgment ignores the fact that taking a person's gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance."

Pensions

The ECJ decision will also affect the cost of buying an annuity - an annual pension income - as women live for longer than men and so receive a smaller annual pension for the same pot of money.

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Director general of Saga, Ros Altman: ''As a man, you will get less pension''

The insurance industry has warned that the change will lead to men receiving a smaller annuity income than they do now when their benefits are brought into line with those for women.

Tom McPhail, a pension specialist at the investment firm Hargreaves Lansdown, said the ECJ decision was a "seismic event which will fundamentally reshape the retirement landscape".

He predicted that annuity rates would equalise for men and women, at levels higher than female rates but "significantly worse" than current annuity rates for men.

"Rates will be volatile for the next few months as insurers monitor their new business and adjust their pricing in response to experience," Mr McPhail said.

Darren Philp, of the National Association of Pension Funds (NAPF), said he was disappointed with the ECJ decision, which would lead to a worsening of people's pension incomes.

"The data shows that there is a clear difference between them when it comes to longevity," he said.

"It is therefore perfectly reasonable for annuity providers to offer rates on the basis of this difference, as long as it is based on clear evidence."



Comments

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  • 320. Mike from Brum
    4 Hours Ago

    Insurance is a con. The government makes it compulsary if you have a car, but there is no regulation and insurance companies can charge what they want
    My insurance went up from £500 to £700 this year and no accidents/speeding convictions in the last 12 months.
    By all means target the riskiest drivers with higher insurance premiums, but that's not what they're doing, its blatant profiteering.

  • 295. mikeyboson619
    5 Hours Ago

    I am a 23 yr old guy and i've been driving for 4 years and i have not had an accident or any speeding tickets or points on my licence for dangerous driving. Therefore i get annoyed having my insurance premium being based upon other male drivers. There are lots of girls who drive equally as poorly as any boy racers and they should be paying more for their insurance.

  • 289. psgm1969
    5 Hours Ago

    Fantastic decision. In 23 years of driving I have had NO accidents yet my ex wife has had 4 - yet her premiums are lower!!!

    Finally the ECJ have got something right!!!!

  • 269. whatotherway
    5 Hours Ago

    When you consider how insurance first started, this does make complete sense. Insurance was for everyone who wanted to join, and there wasn't exemptions, the cost was spread over everyone who joined.

  • 261. Ben
    5 Hours Ago

    Some of the factors insurance companies asses risk on is crazy. They lower the premium if you're married! since when did this make you a better driver.
    However, gender should not be one of these factors. Gender no longer matters, everyone can be a good or bad driver. Everyone moans about equality, but only likes it when it is in their favour. Women want equality, well here it is, welcome!

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