Car Insurance And Life Insurance Premiums Cannot Reflect Gender

The European Court of Justice (ECJ) has banned the use of gender in insurance policies which will particularly hit car insurance and life insurance premiums.

This judgment means that insurers will be legally prevented from taking a person’s gender into account when pricing insurance from December 2012.

It will particularly affect products which take account of the risk differences between men and women such as car insurance and some annuity products.

For example, young female drivers pay less for car insurance because they are less likely to have accidents and therefore women make fewer claims than men.

For life insurance, women on average pay less to reflect their longer life expectancy, while pension (annuity) income for males is often higher because men typically have fewer years in retirement.

The Association of British Insurers (ABI) commissioned research by Oxera carried out in autumn 2010 highlighted the possible impact of removing gender from assessing risk:

• For car insurance: women under the age of 25 could see an average rise of 25% to their premium.
• For annuities: men approaching retirement could see an 8% reduction in annuity rates while rates for women approaching retirement could rise by 6%.
• For life insurance: women could see a rise of as much as 20% in the cost of cover, while men could see a fall of 10%.

Julie Owens, Insurance Expert, at moneysupermarket.com said: “The ruling will no doubt hit female drivers the hardest. Although the ruling doesn’t come into force until December 2012 it is likely we will see a convergence in pricing over the next 18 months.

If your car insurance is due for renewal in the next couple of months then you should shop around and buy your new cover as soon as possible.

On average, using moneysupermarket.com can save you £280 on your car insurance policy, which is a significant saving at a time when the cost of motoring is becoming more expensive.”

MoneyHighStreet.com comment: Whilst this ruling was anticipated by many, it is very disappointing. Equality is important but not at the expense of fairness which seems to be the impact of this ruling. Insurance is all about assessing risk and charging a premium accordingly. Many risk factors need to be taken into account, including gender, age etc to determine a fair insurance premium.

Looking at car insurance, young female drivers will initially be hardest hit with their premiums rising, those for men may drop slightly. In time though no doubt this will evolve into higher premiums for all – albeit insurers will have to use criteria other than gender to determine prices. This coupled with the ongoing rise in car insurance premiums that we are seeing is not good news at all.