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Verity&#39s view

Poor Anna Diamontopoulou. The Greek social affairs commissioner for the European Union could never have known what was about to hit her with the reactions to her draft sex equality directive which is still being discussed by the commissioners.

It proposes the elimination of all sex discrimination outside the workplace. One clause makes clear that this includes sex equality in the provision of “all goods and services”. It did not even mention insurance, let alone unisex annuities.

Sex equality? Didn&#39t we have that already? Wasn&#39t this simply an attempt to make sure the laws of all European countries were in step with the mood of the first years of the 21st Century, that there were no archaic sexist clauses lurking around in antiquated bits of their statute books?

She had not calculated on the British press. No sooner was it leaked than she found herself besieged with controversy. She confirmed that the phrase “all goods and services” was intended to include insurance. She wanted the elimination of all sex discrimination in the calculation of risk but aside from a letter to the FT, she declined to talk about it publicly.

A few weeks later, she told one of my colleagues at the BBC that she believed women were being “punished” in the insurance market “for biological differences”. She said quite clearly she wants insurers to stop using at least those biological differences to create different premiums or annuity rates for men and women and she put the annuities issue in the context of the much lower pensions that women collect compared with men. Pensioner poverty, to some extent at least, is a feminist issue.

Did she understand what she was saying? Many in the annuities industry believed she did not. Their arguments are fairly powerful. Insurers have to do their best to make their pricing reflect the best data there is about the level of risk they are taking. If you ask them to ignore that data, their pricing is less accurate and they are not doing their job as well.

To insist that all products are unisex is to ask insurers to ignore one of the best known and best established areas of knowledge about risk – the differences between the sexes.

If annuities were unisex, some argue, then women&#39s rates would not meet men&#39s halfway, going up by as much as men&#39s go down.

In principle, the rates would go up because of the benefit of men in their annuity pool dying early, leaving more in the pot for the women. But men who knew they were getting a relatively poor deal might drop out of the annuity pool, by putting off taking their annuity so providers would lose the cross-subsidy from men and women&#39s rates would only improve only.

If you really want to nail discrimination, then why not nail age discrimination? Force insurers to ignore age-related aspects of risk and the changes in premiums would be far greater than they are for sex. For example, young male drivers cost insurers more than young women. But the over-50s generally are incomparably safer than either of them. Should they subsidise the young and incompetent and what would happen to private medical insurance if you insisted young people pay the same premium as the over-60s?

In fact, not too much. That is exactly what happens with the NHS. The young and heal-thy subsidise the old and ill by paying the same premium as them, even though they are much less of a risk. The same happens in final-salary pensions. The young pay contributions at the same level as the old, even though the benefit to be felt from those contributions is much higher when you are close to retirement.

For that matter, final-salary pensions incorporate a unisex element which does nothing to put people off them. The guaranteed minimum pension entails a unisex annuity and no one really howls about that.

The difference, of course, is that with the NHS and, to a lesser extent, GMPs, the system is compulsory. You can force one safer group to subsidise another riskier one as long as it&#39s compulsory. But if the system is voluntary, then eventually, the market will catch up and the safer risks will drop out of the pool, rendering all your equality measures futile. Car insurance is compulsory, so maybe that one would work. But unisex annuities could take years off you.

Andrew Verity is a finance reporter at the BBC

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