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Apfa: Make sure you are ready for gender-neutral pricing

There are a number of EU Directives that have been adopted and implemented in the UK prohibiting discrimination on grounds of sex, racial or ethnic origin, age, disability, sexual orientation, religion or belief. Article 5(2) of the Gender Directive (2004/113/EC) allowed EU Member States to permit differences relating to gender in respect of insurance premiums and benefits if gender was a determining risk factor and that can be substantiated by relevant, accurate, and regularly updated actuarial and statistical data.

Effectively when the Directive was implemented this meant that insurance policies could continue to be priced differently based on sex. This saw young women drivers, who presented a lower risk to motor insurers than their male counterparts, paying less for their car insurance premiums. Whilst later in life, preferential annuity rates generally applied to men to reflect their shorter life expectancy. As a result of intervention by a Belgian consumer association, Test Achats, this is all about to change.

In 2009 Test Achats took a case to the European Court of Justice objecting to the use of insurance pricing based on gender. UK insurers fought to keep the right to offer customers premiums that reflected risk based on gender but on 1 March 2011 the ECJ published its ruling supporting Test Achats’ objections. The ruling confirms that insurers can no longer consider whether you are a man or a woman when calculating the price of insurance premiums and any benefits.

The result to the insurance sector is that from 21 December any new insurance business must be issued with gender neutral pricing.

So which types of insurance policies will be affected? As well as the already mentioned motor insurance and annuity purchase there are a number of protection policies that will be affected, e.g. term life, income drawdown, critical illness, income protection and private medical insurance.

The good news is that annuities in payment will not change and that other existing contracts will be unaffected unless the policies are subject to renewal on or after 21 December.

Whilst one might expect that the balancing out of rate changes would be a relatively easy task where the current risk is rated and split equally between the sexes, there are indications that it may not be that straight forward. Some commentators are speculating that providers will take the opportunity of this change to review rates completely and that the equalised rate for men and women will not directly reflect the total of the current premiums paid by both. We are yet to see gender neutral rates from providers.

There will be winners and losers when the directive is implemented and although it may take some time for rates to stabilise, your clients could benefit from a review of their protection arrangements.

The ABI has published a number of consumer facing guides that might be useful when discussing the effect of these changes with your clients. These can be found here.

Linda Smith is senior technical adviser at Apfa


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