The UK insurance market is preparing for radical reform after the European Court of Justice ruled gender pricing for insurance products will be banned from December 21, 2012.
The ruling follows an opinion from advocate general Juliane Kokott last year that using gender as a risk factor when pricing insurance is discriminatory.
Pension provider AJ Bell says the ruling will cost a man with a £100,000 pension pot an average of £12,000 while the ABI says male annuity rates could fall by 8 per cent and women’s rates could rise by 6 per cent.
Protection providers will have to equalise premiums for life insurance, income protection and critical-illness cover.
Currently, women pay less for life insurance due to their longer life expectancy but pay more for income protection.
Hargreaves Lansdown head of pensions research Tom McPhail says the decision, announced on Tuesday, will lead to “a seismic shift” in the retirement market.
He says: “It is now imperative that every investor shops around with their pension fund at retirement because if they do not, they risk ending up with a homogenised standard-issue annuity that is almost certain to be a poor deal.”
Just Retirement external affairs director Steve Lowe says: “This will give providers an opportunity to reinvent themselves because in the future they will need to provide individual, personalised underwriting. They will need to use many, many factors beyond the blunt instruments of gender and postcode.”
Legal & General head of annuity product developments Tim Gosden says: “I think you could argue the days of the conventional standard annuity are numbered now and as the enhanced annuity market develops you could argue that gender is actually less of a factor as medical and lifestyle rating factors kick in.”
In the interim, providers say women could choose to defer annuity purchase to benefit from the anticipated increase.
LV= head of annuities Matt Trott says: “Rates for females are likely to improve significantly, so advisers need to consider how this affects their clients.”
Protection experts question whether the ruling will also apply to gender-based underwriting decisions and if it will eventually be extended to include factors such as age and disability.