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Gender verdict opens up PMI opportunities

Intermediaries need to assess what has gone on with the European court ruling banning gender pricing for insurance and what they need to do to address the situation.

We have to start with the fact that equality between men and women is a fundamental principle of the European Union. Articles 21 and 23 of the charter of fundamental rights of the European Union prohibit any discrimination on grounds of sex and require equality between men and women to be ensured in all areas.

The court was ruling on a challenge by Belgian consumer group Test-Achats, which had argued that a current exemption for insurers contradicted the wider European principle of gender equality.

The court said: “Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination.

“The use of actuarial factors related to sex is widespread in the provision of insurance and other related financial services. In order to ensure equal treatment between men and women, the use of sex as an actuarial factor should not result in differences in individuals’ premiums and benefits. To avoid a sudden readjustment of the market, the implementation of this rule should apply only to new contracts concluded after the date of transposition of this directive.

“Member states shall bring into force the laws, regulations and administrative provisions necessary to comply with this directive by 21 December 2012 at the latest”

This leaves the UK insurance industry in some consternation but the court’s decision does create some opportunities for health insurance intermediaries and IFAs
First, it should be noted this ruling does not mean insurance companies will be offering the same price to everyone.

It still allows “biological factors” to be taken into account when assessing risk, so, within the private medical insurance sector, for example, an underwriter can take into account factors such as body mass index, smoking, alcohol intake and pre-existing conditions when rating an individual for medical insurance.

On the specific issue of gender as a rating factor, the private medical insurance sector will be relatively unaffected when compared with other health and protection products, such as critical illness and income protection.

The vast majority of PMI insurers do not quote different premiums for gender and, for those that do, the difference in premium is not significant.

However, there are some PMI insurers who have used gender pricing in the past and have legacy policies on the books that may need to be adjusted.

Those insurers who used gender differentiation in pricing in the past for PMI tended to focus it mainly on individual policies rather than in the group market and the margin between the two sexes was minimal.

The Association of Medical Insurance Intermediaries circulated the European court’s ruling to its members and the immediate feeling was this would have little impact on the PMI sector.

It must also be remembered that PMI is an annual contract. As the ruling does not need to be implemented until December 2012, there is a whole renewal cycle in the meantime which will allow those PMI insurers affected to adjust their pricing accordingly.

However, that does not meant there will not be opportunities for intermediaries.

Within the mainstream media, there has been some misinformation this ruling will have an impact of medical insurance premiums.

This might be the case for critical illness and income protection cover but not necessarily for the vast majority of PMI schemes. This coverage just shows there is still an underlying level of ignorance among the wider financial community, the media and the public about how private medical insurance is priced.

Intermediaries can be proactive in contacting their clients and reassuring them this ruling will not have a significant impact on their PMI premiums.

Those insurers who have legacy PMI policies with different pricing for gender were mainly in the individual market and the majority of policies in this market were sold direct by the insurers. The individual PMI market has changed significantly over the last decade, with a lot more options available from insurers, including the ability to transfer existing underwriting terms between insurers.

The publicity over this ruling could open up opportunities for intermediaries, as individual PMI policyholders may consider seeking specialist advice on alternative options within the market, especially if continuous cover is required for previous medical conditions.

Traditionally, most IFAs have not looked at their clients private medical insurance arrangements as part of a financial planning review. But if you are having to review your clients’ critical illness, income protection or life insurance policies as a result of this ruling, it could be an oppor-tunity to ask the question about individual PMI.

A bigger number of IFAs are forging alliances with specialist PMI intermed-iaries, referring clients for independent advice on PMI. By choosing a specialist PMI intermediary to work with, the IFA can be confident that their client will be getting good, independent advice and secure in the knowledge that a specialist PMI intermediary will not be a threat to the IFA’s existing client relationship by cross-selling pensions and investment products.

Where the court ruling does have some more serious implications in the protection arena is in the group risk market. This is because group life, group income protection and critical illness all factor in gender, so insurers will need to address this in line with the ruling. This, however, is another great opportunity to start speaking to existing and brand new clients, and the basis to run a full healthcheck inclusive of private medical insurance as part of a total employee benefits package.

Lindsey Joseph is an executive committee member for the Association of Medical Insurance Intermediaries

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