06 March 2011

How you will pay for gender rules: A decision on insurance means huge changes

How you will pay for gender rules: A decision on insurance means huge changes : Millions of women will be charged more for their car insurance while hundreds of thousands of older men face smaller pensions after a controversial ruling from the European Court of Justice.

The court last week banned insurers from using gender in setting the price of cover. The court did not impose the ban immediately, but the verdict represents the biggest insurance shakeup for decades.

It will affect motor, life, illness, travel and some medical cover. It will also hit savers converting pensions into an income for life through annuities. Consumers may be able to challenge some policies already in force, earning a refund on premiums they have paid.

Financial Mail explains what the ruling will do:

What is happening?

Insurers will have to ignore gender when setting prices. They will still be able to take an age, address and individual history into account, but cannot use gender-based assumptions such as longer female life expectancy or better female accident statistics.

This means companies moving to unisex rates, set somewhere between current male and female rates.

How could premiums change?

The three million women motorists aged under 30 could see annual premiums rise by 25 per cent while men in the same age group might get a ten per cent cut. Older drivers will see smaller premium changes.

Pension annuities are closely linked to life expectancy. Research for the Association of British Insurers found that male annuity rates could drop by about eight per cent if insurers can no longer factor men's lower life expectancies into their calculations.

This would cost a 65-year-old man about £500 a year on a pension pot of £100,000. But female annuitants might see rates rise by six per cent, or £400 a year for the £100,000 fund.

Life insurance costs will increase slightly for women, rising by up to 20 per cent depending on age. Men are likely to see rates fall slightly.

How quickly will prices change?

Insurers will have to cover men and women on equal terms by December 21, 2012. But some will change prices more quickly. Most companies are expected to err on the side of caution in the short term, setting rates at a level that sees a higher total premium collected.

Graeme Trudgill, head of corporate affairs at the British Insurance Brokers' Association, says: 'We are initially likely to see female motor premiums rise substantially while male rates probably won't fall much to start with. Over time, competition will see rates settle at new levels.'

Christine Jones, 29, renewed her car insurance last Wednesday under existing rules, but is worried about future rises in premiums as a result of the ruling. She paid £364 to insure her Nissan Almera with Sheilas' Wheels.

Christine, who is single and lives in Harpenden, Hertfordshire, says: 'I don't fancy paying extra because I have to subsidise someone who is a bit reckless on the road.

'I'm relieved the change isn't immediate, but I fear there is going to be a lot of extra admin for insurance companies to change over and that consumers will pay for it.' Christine, a training executive for a software company-is more positive about the prospect-of an improved pension annuity, but says: 'You pay for things like car insurance every year of your adult life. The pension only comes into effect much later on.'

Should I rush to buy?

On the face of it, yes. Men who want to draw an annuity and women who want life cover might get better terms if they buy before December 2012.

The post-war baby-boom means 1.4million people are due to reach 65 in the 22 months before next December, says Adam Stevenson, a consultant with actuary Towers Watson. 'There is scope for a significant number of gender-specific annuities to be written in this time,' he says.

But it is likely that many insurers will change rates sooner, not least because of uncertainty about whether they may face a bill for discrimination claims on existing policies.

What about insurance policies already in force?

Some of these may be open to challenge by men or women who think they should be offered better terms. The verdict means there is a grey area around policies started after December 21, 2007, and that will still be in force in December 2012.

Zoe Lynch, partner with law firm Sacker & Partners, says: 'The judgment is not limited to new contracts arranged from December 21 next year. It may come down to how this ruling is interpreted in UK law or to the guidance given by regulators as to whether existing plans are affected.'

The ABI says it is consulting with the Treasury and the Financial Services Authority over how they intend to implement the judgment.

If the law is not clear, future court cases are almost certain. Unions, for example, could push for backdated higher annuity payments on behalf of their female members.

Will insurers find other ways to make the boy racers pay?

Insurers will be looking for alternative ways to charge reckless drivers more. More firms will offer satellite trackers to younger drivers, which measure where and how a car is driven.

Simon Douglas, director of AA Insurance, says: 'Insurers will develop more sophisticated ways of rating people to make up for the loss of gender pricing. We might see the kind of car you drive or your occupation counting for more in setting your premium.'

And Lynch says: 'Insurers may ask more questions to capture some of the gender differences in another way, for example with detailed medical questionnaires for all annuities.'

Is this judgment the thin end of the wedge?

There are fears that other factors, such as age or postcode, could be challenged as a form of discrimination, even if they are backed up by hard evidence. The Government published a consultation last week on age discrimination.

This says insurers can still use age to price policies but will have to direct people to an insurer that offers cover to younger or older consumers if they decline someone on the grounds of age.

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