Insurance: ECJ imposes gender bias banPosted on: 09 May 2011 by Peter McGahan
2012 insurance legislation change will have winners and losers.
The European Court of Justice has created a ruling which effectively bans the use of gender bias for insurance products from December 2012.
Yes, it seems peculiar and another opportunity to have a swing at interference, but the reality is that the changes will come into force. Today we know that insurance products such as life insurance, car insurance, group life insurance, pensions, annuities, critical illness policies etc, all have a gender bias for the cost of the insurance.
This would seem fair to most. We know that women live longer. We know women have fewer car accidents than men. On that basis, it seems fair that men should pay more for their car and life insurance as well as the other insurances aforementioned. It also seems fair that men should receive bigger annuities (that’s what your pension is called when you are receiving it as an income) as they live shorter lives than women, so insurance companies can pay out more as they know they will be paying the annuity for less time. Swings and roundabouts it seems.
Mais non, as they may say in Belgium, because a Belgian consumer group has won a case, which effectively turns the information above on its head.
This has created waves that could have a far reaching impact on insurance product providers but, more importantly, the consumer.
It is probably the intention from insurance companies to alter all premiums and underwriting to a gender neutral basis i.e. no difference in cost between men and women. This means women are clearly subsidising men as the insurance company still needs to take in the same amount of premiums.
How will changes affect you and what might you consider doing?
If you have car insurance and are a male, expect your premiums to lower. The opposite will be true for women. If you have a life insurance policy you should check the policy to see if the premiums are reviewable or guaranteed. This may well be a good time to look for a guaranteed policy as the rates for women will undoubtedly increase post 2012. This is also true of most life insurance policies such as critical illness, permanent health insurance, group life insurance etc.
After 2012, men who have a guaranteed life insurance policy should have a look at their policies to see if they are paying more than they should.
If you are planning to retire within the next eighteen months you might wish to consider the benefits of drawing your retirement income now before the changes in 2012 take effect. When you reach retirement age you will have a pension pot. That pension pot is offered to an insurance company who give you a guaranteed income. That guaranteed income is called an annuity. The amount of annuity depends on a number factors, one of them being your gender. If you are a male, you will be expecting to live for less time than females so they will offer you a higher income. If the gender bias for insurance is to be taken away, the impact on you as a male is a smaller income.
Similarly if you are planning for retirement as a male or female, you will have been doing so on the same basic assumptions as above. Consequently, you will need to reconsider these and look to increase your premiums to your pension.
Naturally insurance companies will have to respond to the changes (they haven’t yet signalled what they intend to do) and they will have to look at how they reassess risk and spread accordingly. There is an element of second guessing here but there is already talk of the use of other biological data in underwriting such as greater detail on previous history and family history problems and strong hints of the use of Body Mass Index (BMI) in underwriting. BMI or 'Blooming Meaningless Information' has as much use as trying to catch mist with a net.
Whilst good as a guide for the masses, how would it be more preferable to that which we already know to be true - women live longer and have fewer car accidents?
About Peter McGahan
Peter is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.
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