1 minute guide to the EU Gender Directive

A quick 1 minute guide to the impact of the European Court of Justice (ECJ) decision announced in March 2011 which will shortly make itself felt across the insurance world.

Man=Woman

In the Test-Achats case, the ECJ decided that the EU Gender Directive prevented an insurer from taking sex into account when setting premium rates, whether for car insurance, life cover, annuities or any other insurance. For various technical reasons, the ECJ said that the application of the judgement could be deferred until 21 December 2012 and would then apply to all new insurance contracts.

Consequences

All insurance companies will need to have equalised any rates which are currently sex-based before 21 December. There is already anecdotal evidence that motor insurance premiums are drifting upwards for women in preparation for the time they have pay the same as (higher risk) men.

On the life insurance front, women live longer than men, so at present they pay lower premiums for life cover. Once equalisation arrives, women will pay more, but in theory men will pay less. As more men than women arrange life cover, it will not be a simple case of setting the new rate mid-way between the male and female rates: the new premiums are likely to be closer to the old male rates.

For pension annuities, there is an opposite effect. Women’s greater life expectancy means that, at present, they receive a lower annuity rate than men of the same age. Once equalisation takes effect, male annuity rates will fall, but female rates will rise. Theory says that the rate drop for males will be small as many more men than women buy annuities. In practice, the outcome is less certain: the Treasury suggests that ‘male annuity rates could decrease by 13% per year’.

ACTION

If you are thinking about arranging new life cover or buying an annuity in the near futures these changes could well affect you – for better or worse.

Rates are starting to move already. Talk to us to understand your options – delaying to take advantage of the rate changes may not be the best choice.