Insurance ruling has implications for all

A DECISION in Europe today will have implications on drivers, people approaching retirement and millions of others. ADAM AIKEN, Editor of MyMoney24, reports.

Young motorists and people approaching retirement are expected to be amongst the biggest losers following a ruling by the European Court of Justice that insurers are not allowed to use gender when they calculate premiums.

Although the announcement was widely anticipated, it was still widely condemned by the insurance industry, which said consumers could expect to pay higher premiums.

At the moment, women drivers tend to pay lower premiums than men because they are deemed to be less likely to make a claim, while men approaching retirement tend to get more generous pension settlements because they have a lower life expectancy.

But the court has ruled that insurers must stop using gender as a factor from December 2012, meaning women drivers can expect to see increases in their motor premiums while pension payments to men will most likely be cut.

Mike Hoban, of price comparison service Confused.com, said the car-insurance implications amounted to “a gender tax on women”.

He added: “It is extremely unfair and illiberal that women will be penalised for the fact they cause less serious accidents and make less expensive claims than their male counterparts.

Most Read

“It is a fact that motor insurance claims made by young male drivers cost more as they are more likely to be involved in serious accidents causing death and bodily injury.”

Julie Owens, of Moneysupermarket.com, said: “We will now see a fundamental and significant change to the UK insurance market.

“This move will be detrimental to UK consumers, and in the case of car insurance, premiums for female drivers will certainly increase sharply as a result.

“Currently, men pay an average of 30pc more than women. However, the figures show the cost of premiums for female drivers has already been rising at a faster rate than for men, especially among the younger generations.

“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.”

Meanwhile, the changes at retirement are likely to penalise men.

Someone who has built up a pension pot usually uses it to buy an income for life from an insurer, called an annuity.

Men currently receive higher annuity rates than women because, statistically, they don’t live as long.

But according to MGM Advantage, the court ruling will mean that men and women will receive a unisex rate in future, which will be lower than the rates currently offered to men.

“The annuity industry has been moving towards pricing that is far more individual and therefore fairer to the customer,” said Aston Goodey, of MGM Advantage.

“While this gender ruling will create winners and losers, the truth is that it’s another blow to the conventional annuity and thousands of people approaching retirement.”

It won’t just be young drivers and people approaching retirement who will be hit by this judgment, though. Life insurance premiums will also be affected.

“This is a horrible mistake by the court,” said Matt Morris, senior policy adviser at life insurance broker Lifesearch.

“Women currently pay more than men for life insurance, whereas men pay less for income protection.

“It is very unlikely that premiums will meet in the middle because there will be huge costs to the industry of repricing and updating their systems, so everyone will end up paying the higher rate. Everyone loses.”