European court bans gender-based insurance premium setting

On March 1, the European Court of Justice (ECJ) ruled that taking the gender of an insured individual into account as a risk factor in insurance contracts constitutes discrimination.

The ECJ says insurers must provide unisex premiums and benefits as of December 21, 2012.

The Association of British Insurers (ABI) says the Court’s ruling is “disappointing.”

“The insurance industry has fought against the possibility of this for the last decade and will now do everything possible to manage negative effects for customers,” it said in a statement. “Before this judgment insurers were able to take gender into account when assessing a person’s risk. Today’s judgment means that insurers will be legally prevented from taking a person’s gender into account when pricing insurance from December 2012.”

The ABI says the judgment will affect premiums on products like auto insurance and some annuity products.

“For example, young female drivers pay less for motor insurance because they are less likely to have accidents and therefore women make fewer claims than men. For life insurance, women on average pay less to reflect their longer life expectancy, while pension (annuity) income for males is often higher because men typically have fewer years in retirement.”

ABI-commissioned research by Oxera carried out in autumn 2010 highlighted the possible impact of removing gender from assessing risk:

• For motor insurance: women under the age of 25 could see an average rise of 25 per cent to their premium.
• For annuities: men approaching retirement could see an eight per cent reduction in annuity rates while rates for women approaching retirement could rise by six per cent.
• For life insurance: women could see a rise of as much as 20 per cent in the cost of cover, while men could see a fall of 10 per cent.

The British Insurance Brokers’ Association (BIBA) says that the ruling is “almost certain” to mean higher auto premiums for young female drivers.

“Insurers will no longer be able to use the exemption for insurance to base female driver premiums on statistics which show that they have lower accident rates and costs.  The average 18 year old male claim cost is £4,400 (CAD $6,981) compared to the average 18 year old female claims cost of £2,700 (CAD $4,283),” the Association said in a statement.

Steve Foulsham, BIBA Technical Services Managers 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% but in some cases more than 50%.  However it’s unlikely that premiums for male drivers will reduce much as their risk is still considerable.”

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