According to a Belgian consumer group, men and women now have the same life expectancy and drive equally dangerously
Insurance pricing is all set to change. As a result of the 2004 EU Gender Directive it will be illegal for an insurer to use gender as one of the risk factors when determining an insurance risk. Until March last year, UK insurers were able to opt out of this Directive but in March everything changed, not just for insurance companies but for people like you and me who buy insurance policies and annuities. This was the result of a challenge to a provision in the Directive that allowed this opt out made by a Test-Achats, the Belgian Consumer Association, which was ruled on by the European Court of Justice.
Will insurance cost more?
How this will affect the price of insurance is a difficult question to answer as insurers are still working out how to deal with the changes and keep their customers. Gender is just one of a large number of risks that are taken into account when insurance underwriters decide what to charge. For example when you are buying life insurance, you will need to provide the insurance company with details of your age, whether you smoke, how many units of alcohol you consume, your height, weight, medical history together with details of your family’s medical history. For motor insurance they’ll want to know what type of car you drive, how many miles you drive a year together with details of your driving record (accidents and convictions) and even what you do for a living. All of these factors along with many others go together to help assess your risk.
One of the positive outcomes of the changes could be that insurers become more sophisticated in the ways they assess insurance risks so that rather than making generalisations about how men and women pose differing risks, each person is treated as an individual risk.
The UK insurance industry uses many risk factors in order to work out the cost of insurance. Insurers collect claims and other statistics and use this information to ensure that customers who are more likely to claim pay more for their insurance. For example, statistics indicate that women live longer than men and this means that life insurance is generally cheaper for women than it is for men. On the flip side, because women live longer than men, they will get a lower annuity rate when they go to buy their pension as the insurer is statistically likely to have to pay out their pension for longer.
When it comes to car insurance, underwriters know from their claims statistics that young men are a more likely to have an accident than young women so they are charged more to insure their cars.
In another example, although women live longer and are less likely to have major car accidents, they are statistically more likely to suffer ill health and claim on their Income Protection (sick pay) insurance which means – you’ve guessed it – their premiums are higher than for men.
But everything is about to change …..
As a result of Test-Achats’ challenge, the European Court of Justice (ECJ) has ruled that ‘gender discrimination’ is illegal when deciding how much people pay for their insurance and the income they receive from their pensions when they retire.
Until now most of us were quite happy with how insurance is priced but falling into line with this EU Directive means men and women will now have to be treated equally. So does this mean men will pay less for life insurance and women more for car insurance as prices are equalised? Well the honest answer is we don’t know for sure as insurance companies across the land are working out how best to comply with the new rules, remain profitable and retain customers.
Who are the winners – women or men?
The winners and losers depend on what products they purchase. A man who is retiring after 21st December 2011 could be hundreds or thousands of pounds worse off, as annuity costs for men, who statistically don’t live as long as women, are likely to increase. Women on the other hand, who can expect to live 4 years longer than men, are likely to find themselves better off! However, even that isn’t a clear-cut point. It shouldn’t be forgotten that most annuities are currently bought by men, so women will be negatively impacted anyway if they rely on their husband’s pension for their retirement income.
Current projections are that young female drivers will be particularly affected by the changes. The ruling is likely to force car insurance costs up for young women – Association of British Insurers (ABI) research predicts an average increase of almost 25% for women under 25, whilst young men could find their premiums dropping by around 10%.
When will this affect me?
The new rules come into force on 21st December 2012 and until then prices are likely to remain the same as they are now. The good news is that It’s unlikely that the rules will be applied retrospectively which means that if you are a women and enjoying cheaper life insurance than if you were a man your premiums will be unaffected.
What do Independent Financial Advisors recommend?
Pension planning
If you are about to retire, IFAs recommend you shop around before buying your annuity to find the best rate – remember this is not always the deal offered by your pension provider. If you are in poor health when you retire, there are specialist annuity providers who may offer you a much higher annuity income if your life expectancy is reduced.
We certainly wouldn’t advise buying your annuity earlier that you actually need it to beat the December 21st deadline as you could lose out on vital investment returns.
Life insurance and Income protection
If you need to take out life insurance or income protection, our advice is don’t wait until the new rules come just in case the new rates are better as you will miss out on vital protection this year.
If you already have policies in place, now is a great time to review what you’ve got to make sure you have the right cover at the right price.
Car Insurance
It may be worthwhile reviewing your car insurance early if it is due for renewal in the early part of 2013. Otherwise shop around carefully at renewal time and make sure you get the cover you need remembering that some policies may have lesser cover to make them more price competitive.