From 21 December the European Court of Justice’s ruling on gender discrimination comes into force stating that gender should not be used as a risk factor in the underwriting process for all insurance policies. In other words insurers whether marketing life cover, critical illness, PHI, PMI or any group scheme covering the same benefits cannot use gender to differentiate on price.
This coincides with two other significant and technical changes to insurance companies’ regulations: the introduction of a new solvency directive (Solvency II) and a revision of the way profits are taxed. Both these measures are likely to reduce insurance company profits and so will add to pressure on companies to increase rates. This begs two important questions:
- How might the market change when the gender neutral rates go live on 21 December?
- What should advisers be thinking about doing now to maximise the opportunities that gender pricing gives?
The most obvious and significant implication, and the one that will receive the most attention, is the implication for rates. Application of gender pricing amongst providers and how it will impact on rates will differ but we are likely to see:
- Female life cover and critical illness rates increase between 20 per cent and 25 per cent
- Income protection male rates increasing by between 10 per cent and 20 per cent
- Female income protection rates falling by 15 per cent to 25 per cent
- Group life and group critical illness will see increases of between 10 per cent and 15 per cent, and
- Group PHI will see increases of around 5 per cent
A rather less obvious implication is that the law does not acknowledge pipeline applications – the contract has either been entered into or not. Contracts entered into after midnight of 20 December cannot discriminate by gender. The new, mostly higher, rates will apply irrespective of any earlier illustration to the contrary.
The, perhaps uncomfortable, reality is that where applications need a GPR or any medical examination or test they must be submitted at the absolute latest by the end of September to absorb any underwriting or acceptance delays.
We now have two months to submit all applications that may trigger a GPR. The longest delays will be for GPRs followed then by medicals, so as we get nearer to the second half of the year it would be advisable to select insurers with the lowest requests for GPRs and medicals.
Perhaps, more importantly, these changes should be explained to clients especially the point that deferring making a decision can come at a considerable price. Furthermore, it should be remembered that the older the applicants and the higher the sums assured the greater the risk that GPRs and medicals will be required. For example, a £200 per month contribution over just a 10 year term with a 25 per cent unnecessary female rate increase could cost the client an extra £6,000.
There can be no doubt that gender pricing not only represents an ideal opportunity for clients to take advantage of protection rates that are at a historic low but an opportunity for adviser to demonstrate their value.
Tony Mudd is director of tax and technical services at St James’s Place