How the ECJ gender ruling will affect your insurance
By Kate Saines
There's been more bad news for our personal finances this week.
As if we don't have enough to contend with worrying about poor savings rates, a lack of affordable housing, VAT rises, the cost of living soaring and unemployment, it looks like our insurance premiums are about to go up too.
If you are woman, that is.
This is thanks to a ruling by the European Court of Justice (ECJ) which has made it illegal for insurance companies to charge higher premiums to men than women.
It's a highly controversial move, which has angered many people. Mike Hoban, marketing director of comparison website, Confused.com branded it a gender tax on women.
Meanwhile, the Association of British Insurers (ABI), which represents the UK's insurance firms, voiced its disappointment at the ruling.
Its acting director, Maggie Craig, said: "The judgement ignores the fact that taking a person's gender into account, where relevant to the risk enables men and women alike to get a more accurate price for their insurance."
So what is this ruling, and how will it affect you? We've answered some questions about this case to help give you a better understanding of this historic decision.
What is the ruling?
The European Court of Justice has ruled insurers must not be able to use gender as a factor when charging for insurance premiums.
When will it come into effect?
On December 21st, 2012.
What areas of insurance will it affect?
There are two types of insurance premium which currently take into consideration whether someone is male or female when calculating premiums.
The first is car insurance. Typically, men drive more than women and statistically have more accidents therefore they are more of a risk to insurers and must pay higher premiums as a result.
For this reason insurers have always used gender as a factor when calculating premiums for motor insurance. After the ruling, they will not be allowed. Instead they will have to use other criteria such as age, location, experience, the amount a motorist will drive and so on.
Ms Craig of the ABI said: "The judgement ignores the fact that taking a person's gender into account, where relevant to the risk, enables men and women alike to get a more accurate price for their insurance."
The second area is life insurance. Women generally have longer life expectancy than men, and therefore pay lower premiums to reflect this fact. The gender discrimination case will change this.
It's not just insurance premiums which will be affected. Annuity rates, or pension income, are also calculated using gender as a factor.
Men don't live as long as women, statistically, so they have fewer years in retirement and therefore receive higher annuity rates than women.
The ruling will mean these rates cannot be calculated according to gender, and therefore women could receive higher rates, and men lower rates.
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Who will it affect and how?
In terms of car insurance, if you are a bloke, this ruling will not affect you directly as your premiums will stay the same.
Experts reckon rather than men seeing a fall in premiums to bring them in line with women, the cost of buying insurance will rise for women to the level paid by men.
According to the British Insurance Brokers Association (Biba) young female drivers renewing their motor insurance premiums from December 2012 will see a "significant change."
Steve Foulsham, the organisation's technical services manager, said: "Unisex rates will have to apply for motor insurance with the likelihood of an increase in premiums for females which could typically be up to 25 per cent, but in some cases more than 50 per cent.
"However, it's unlikely that premiums for male drivers will reduce much as their risk is still considerable."
The ABI calculated, meanwhile, that women under 25 could see an average rise of 25 per cent to their premium because of the ruling.
Graeme Trudgill, head of corporate affairs for Biba, said women would effectively be paying a cross subsidy for males on their premiums.
Where life insurance is concerned, ABI research suggests women could be looking at a rise of as much as 20 per cent to the cost of cover, while men could see a reduction of ten per cent.
And for annuities, the ABI said, men approaching retirement could face an eight per cent reduction in annuity rates, while women in the same stage of life could see a rise of six per cent.
Retirement income specialist, MGM Advantage, estimated that if calculations using gender were no longer permitted, men and women would receive a unisex annuity rate.
This would, in general, be lower than the rates offered to men, but higher than those provided to women.
Aston Goodey, sales and marketing director of MGM Advantage, said: "The annuity industry has been moving towards pricing that is far more individual and therefore fairer to the customer.
"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."
What other problems could the ruling cause?
There are fears the ruling will discourage more people from taking out important insurance policies.
Indeed, the ABI said it would be crucial to ensure the news did not put people off having vital insurance which protects them against accident or illness and provides an income in retirement.
What can we do to reduce the impact?
Mike Hoban, Marketing director of Confused.com, said it was now more important than ever that women did everything they could to get the lowest possible car insurance premium.
"Shopping around is essential," he said. "Women who only use their cars socially should only pay for social insurance, no social and commuting.
"If they only drive 8,000 miles a year they should insure their vehicles for this, not 10,000 miles."
He also suggested paying annual premiums instead of monthly, as this is a cheaper option. He even suggested using a low interest rate credit card to pay the full amount if they could not afford to make one instant payment.
What now for the future of insurance premiums?
There is now an argument emerging for insurers to use other more statistically accurate methods of calculating insurance premiums.
Mohammed Khan, director of PwC's actuarial practice, said: "Insurers are now likely to move towards looking at how drivers actually use their cars when calculating premiums.
"This could lead to a steep uptake in pay-as-you-drive schemes, which charge you for the distance you drive, when you drive and potentially how you drive."
He said this would benefit women as they, according to statistics, generally drive less than men.
Many insurance industry experts are also concerned that if gender has become an issue in the world of insurance, then age must be too.
Mr Khan added: "The concern now for insurers is whether age will be next on the European Court of Justice's agenda.
"Any ruling against discriminating an insurance premium based on age would have a far greater impact on consumers and the insurance industry than today's ruling."
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