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Insurers must be allowed to use gender as a risk factor

Any type of discrimination is wrong. Whether it is racism, ageism, sexism (just ask the guys at Sky Sports) or any other “ism”, it has no place in modern society.

However, many in our industry are not applauding calls from the EU Court of Justice to end gender discrimination by insurers, and backing their plans to force providers to cease using a person’s gender as a rating factor for insurance products.

A final decision from the EU is expected in the next month or two and if, as is highly possible, the outcome is to remove the opt-out clause which allows insurers to price products based in part on a gender, male and female customers can expect the same premiums for all types of cover.

A good thing all round? Well, it depends. Broadly speaking, women get cheaper premiums than men for products such as life cover and so insurers would need to make a decision; should they charge everyone the cheaper premium and take on a much greater risk for male lives, or should they charge everyone the higher premium to ensure they are not left exposed?

Similar dilemmas would occur in the world of annuities (where men traditionally enjoy higher payments) and in the pricing of many other protection and general insurance policies.

The point has been spectacularly missed: this is not discrimination, it is differentiation. Perhaps an example would help.

If a car insurer made the decision to charge women higher premiums, based on its perception that women are worse drivers than men, it would be discrimination. If a car insurer used statistical data to determine that, based on known facts and past experience, female drivers were on the whole a lower risk than their male counterparts and therefore chose to offer them lower premiums, it would be differentiation and perfectly logical and acceptable.

Actuaries use gender as part of a wide range of other factors when determining a potential risk. Their methods and process can be demonstrated and justified in precisely the same way that we can show why a person’s occupation, age, family history, lifestyle and health are relevant differentiators.

We must hope that common sense prevails and that insurers are permitted to continue using gender as a risk factor, the alternative is likely to be the worst of both worlds.

Finally, and for the record, no-one, male or female, fully understands the offside rule. At least not since it was changed by a bureaucratic, meddling governing body.


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Phil is dead right.

    Insurance and annuity pricing is based bon statistical likelihood of survival and gender is one of these criteria.

    It would be incorrect, indeed it would be baffling, if insurers are forced to adopt unisex rates. Also, like much of the financial services world, it flies in the face of common-sense.

    Forget it, EU.

  2. Life assurance rates and annuity rates for males and females are only around 4 years apart, so the cost differences would not be enormous.

    However, look at PHI where female morbidity is around 50% higher and that creates a real headache.

  3. Where will this end?

    If insurers are no longer to “discriminate” on the basis of sex, will the EU the wish to apply a similar process for age?

  4. Spot on Phil.

    It would be grossly unfair if men end up being charged more for IP and women charged more for car insurance just because the EU sees this as discrimination.

    On face value, telling someone that men and women pay different premiums may seem like discrimination, but a five minute explanation as to why should enable anyone with common sense to realise just why our industry does this.

    Let’s hope common sense prevails!

  5. Another perfect example of the EU bureaucrats putting Political Correctness before logic and common sense.

  6. If only insurers had an industry body that could lobby against this.

  7. Funny – I thought insurers did have a trade body – but I don’t recollect seeing anything in the press/news about the ABI protesting against the injustice of the EU’s proposal?

  8. Why do we need actuaries when we have the EU?!

    Absolute nonesense, keep your nose out EU…again.

  9. I believe the ABI had a seminar yesterday and there is a fair amount of lobbying going on by reassurers and insurers, although less interest shown by the Treasury…

    Not only does it not make sense but could cost the industry millions (current estimate is I believe £35bn) if premiums are reduced. Churning costs us enough anyway, this would be a disaster.

  10. The ABI has produced this paper explaining why gender neutral pricing does not work in the UK market.

    It’s not the EU that is causing the issue but the Belgian Test Achats (a consumer group) which has taken the issue to the European Court. Read the ABI paper and see why this would be so disastrous for the insurance market. I suspect there won’t be a reaction until women are paying 25% more for their car insurance, men are receiving less on the pension annuities, all life insurance premiums go sky high, and no-one wants to provide critical illness any more…but by then it will be too late.

  11. Great article Phil.

    Wow this is ground breaking stuff from the EU. Perhaps the next thing they will suggest is not to rate on age (so as not to offend those blessed with maturity), and instead rate on religious preferences. Sounds mad but based on this stupid suggestion, its probably not far away.

  12. Any type of discrimination is wrong. Whether it is racism, ageism, sexism (just ask the guys at Sky Sports) or any other “ism”, it has no place in modern society.

    Why then,No Long Stop for Financial Advisers!
    Do the EU agree with this?

  13. Agree discrimination is wrong. But differentiation isn’t. How are you going to explain to male clients why their CI has a breast cancer exclusion, or why your female clients are being asked to go for a PSA test? Because that’s what’ll happen if we can’t use gender in underwriting.

    Oh well at least you won’t have to worry about RDR any more because potentially there won’t be much of an insurance industry left…or do you all think that it’s not going to affect you if this legislation goes through?

    Let’s all hope the ECJ sees sense on the 1st March…

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