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Gender pricing: all’s fair in love, war and insurance premiums

Have you ever wondered why women tend to pay less for car insurance than men, or why men get more bang for their buck when they convert their pension into an annuity?

It is all to do with the practice of gender-based pricing used by insurers to calculate the premiums we pay. But it is a practice that is about to be outlawed thanks to a landmark ruling – a ruling that will soon affect how much you pay for insurance or get from your pension fund.

The European Court of Justice in Luxembourg has ruled that using differences between men and women as a risk factor in setting premiums for car and medical insurance and pension schemes breaches EU rules on equality. "Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination," the court said in a statement.

How it will affect you will depend on your age, medical condition and gender, although it is anticipated that more men than women will be better off as a result.

If you have a teenage son you will be all too aware of the sky-high cost of insurance. If you have a daughter of a similar age, you’ll be relieved to learn that although it is still expensive, premiums are lower for young female drivers.

Younger female drivers pay significantly less than their male counterparts because they are less likely to be involved in accidents and therefore, less likely to make a claim.

But while the equalisation of motor premiums will make all the headlines because of its mass-market need, all insurance policies from life cover to private medical insurance will be impacted.

With life insurance and pension annuities, the difference in premiums or benefits can be explained by differences in the life expectancy of men and women. Owing to their lower mortality risk, women benefit from lower premiums on life insurance, but because they will live longer they will get a lower annuity income from their pension.

The deadline may be around six months away, but people need to reassess their situation as soon as possible. Policies that are up and running before December 21 will not be affected by the ruling and so it may pay to review your situation now.

The savings could be considerable, particularly once you factor in the length of the policy. Experts suggest that the cost of life cover and critical illness rates for both men and women could rise by around 25 per cent (ABI News Release, 1 March 2011). If this is the case, you could save yourself £6,000 by paying £200 a month on a 10-year policy rather than paying £250 a month.

And while the beginning of Christmas week might seem a long way off people who want to revisit their critical illness, PMI or life insurance policies ought to get a move on because it is not just a case of signing on the dotted line.

Medicals will have to be arranged and processed before an application is approved – and this could take up to three months. In short, an application submitted in September could struggle to beat the deadline.

There is another reason for not resting on your laurels.

Insurers may start to change their pricing ahead of the deadline. Indeed, it would appear that motor insurers are doing just that. According to the latest AA Index, motor premiums for young male drivers fell by almost 1 per cent over the first three months of this year, while the cost of cover for young women increased by 4.8 per cent. 

The inability for insurers to use gender will not necessarily make pricing fairer, but it will make insurance more expensive for many and reduce pension income for many too. It’s why you should act sooner rather than later.

To arrange a complimentary review meeting please contact David Johnson on 01452 621160, by email david.johnson@sjpp.co.uk or visit www.davidjohnsonfp.co.uk