Car Insurance – Paying for the boy racers

INSURANCE: Court of Justice, outlawing the use of gender as a determining factor in the price of insurance, will have major and costly repercussions

THE INSURANCE industry is, typically, fairly sedate and doesn’t make much of a fuss as it goes about its business of making money. It was thrown into a complete tizzy last week however after a ruling from the European Court of Justice (ECJ) effectively forced it to tear up its pricing rule book and start from scratch.

Last Tuesday, Europe’s highest court issued a ruling outlawing companies from using a person’s gender to determine prices. As a result, women are likely to see life assurance and motor insurance policies climb significantly while pension payments will almost certainly increase for men. The only likely winners – at least in the short-term – will be the insurance companies.

The court ruling has been a long time coming. Proposals for gender equality in the insurance industry have been on the table for the best part of a decade. A directive on equality in the supply of goods and services came into force in 2004 and at a stroke, outlawed all discrimination based on gender.

An exception was made for insurance companies and they were allowed to opt out of the prohibition under certain conditions. This derogation was not good enough for the Belgian consumer body Test-Achats, and it, along with two private consumers, brought a case to the country’s constitutional court challenging the opt-out. Almost overnight, the dominoes started falling.

Last October, the ECJ advocate general Juliane Kokott published a ruling arguing that it was “legally inappropriate” to link insurance risks to a person’s gender. “The use of actuarial factors based on sex is incompatible with the principle of equal treatment for men and women,” she said. Last week, the full court backed her decision, describing the derogation “from the general rule of unisex premiums and benefits” as invalid, with effect from December 21st 2012.

Within minutes of the ruling being made, it was drawing condemnation from the industry, which said differential pricing for men and women was legitimate given their different risk profiles. “Europe-wide the effect on the price and benefits and on the choice of insurance products for consumers could be significant,” according to the CEA, Europe’s insurance industry lobby.

Mike Kemp, the chief executive of the Irish Insurance Federation (IIF) agrees and says he was “disappointed” by the ruling. He says female drivers benefitted from discounted rates for motor insurance because of their better claims record, and pay lower rates for life assurance because of greater life expectancy than men.

For the same reason men get better rates for pension annuities. “Insurers have always priced risk objectively, based on statistical evidence, and there is no reason why this process should be interfered with,” he says.

“This ruling is likely to be unfair for some people. It means that low-risk customers could pay more for their insurance needs, even if they present a lower insurance risk to the insurer,” Fiona Deering, a director of online insurance brokers, says. “I would expect that prices for women will increase more than the prices for men will drop on the back of this ruling,” she continues.

Ciaran Phelan, the head of the Irish Brokers Association, was singing from the same hymn sheet as was the chief executive of the Professional Insurance Brokers Association (PIBA) Diarmuid Kelly. He says the ruling would, in all likelihood, lead to increases in premiums for female drivers. “In the case of car insurance it is likely to mean young male premiums will fall while young female premiums will rise.”

But by how much? Take the example of a male and female driver from Wexford, both aged 24 and both of whom drive a 2008 Ford Focus. The difference in their premiums for a fully comprehensive policy can be as much as €400 more for the male driver, Kelly says.

Men under 30 can pay nearly 100 per cent more for motor insurance than their female counterparts, with all other things being equal. Older men also pay more based on gender. A 35-year old man who lives in the same area and drives the same car as a woman of the same age pays approximately 30 per cent more for a motor insurance policy.

The reasons are clear. Statistics show that men in certain age groups are more likely to have an accident than women and so pay more for their insurance.

Men also pay more for life insurance because they are more likely to die earlier. Women pay more when it comes to pension funds, again because of a longer life expectancy. They also get a reduced annual pension for the same pot of money despite the fact that that pension pot has been accumulated from smaller average earnings.

The ruling will not have to be implemented until the end of next year, so companies and risk assessors will have plenty of time to change the template for risk assessment by ignoring traditional statistical gender-based evidence.

It could pave the way for a potentially more damaging legal challenge to insurers’ reliance on their customers’ age in setting prices and payouts.

This would lead to a ridiculous situation whereby a 17-year-old and a 50-year-old would have to be charged the same for car insurance despite the wildly different risk profiles.

“Of greater concern to the industry is the likelihood there will be further European challenges, particularly around age,” according to Mark Winlow, head of general insurance at KPMG. “This is a more significant factor than gender, as age is used much more widely to differentiate risks.”

Gary McCarthy is the MD of, an online insurance brokers which offers discount insurance to women. It has 50,000 customers, north and south of the Border. “This ruling is going to unfairly penalise women. Insurance has always been based on risk and not on equality and in that sense it has always been discriminatory. It can discriminate against people who smoke or drink for example.”

He describes it as a slippery slope and says age might be next. This would mean companies would have to charge a 19-year-old driver the same as a 50-year-old despite the completely different risk profiles. He says if this happens, some insurers will exit the market.

His company is looking at a pay-as-you-go system which would see a black box installed in a car and the premium would rise or fall depending on the driving patterns a person has. They might pay a higher premium if, for example, they use the car between the hours of 10pm and 4am on a Friday night. People would also be hit with extra charges if they exceeded the speed limit by 10 per cent.

It would see the data downloaded from the black box on a daily basis and input into a central system. If a person was found to have exceeded the speed limit by more than 30 per cent on three occasions their policy would be cancelled. The cost of this technology is falling fast, McCarthy says.

“It is available and not too expensive. There are plenty of other ways to skin a cat,” McCarthy says. “While of course we will comply with the law, there are other things we can do. We might target hairdressers, cabin crew and nurses – professions which are predominantly female – and offer them discounts.”

He says it might actually be quite good for his business because the law does not prohibit marketing directly to women. With the vast majority of his customers being women, he says, he will be able to offer lower rates than a company which has a gender balance. “We will take on men but if they want a pink insurance cert and all those other bits and pieces, that is up to them.”

Women are likely to see life assurance and motor insurance policies climb significantly while pension payments will almost certainly increase for men

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