Insurance premiums face gender upheaval

The insurance industry is having trouble calculating exactly how its premiums should change

Millions of people are going to find that some of the insurance premiums they are quoted will change markedly.

Thanks to a ruling from the European Court of Justice (ECJ) in March last year, insurers will no longer be able to take into account whether their customers are women or men.

In the jargon, premiums must become "gender neutral", with men and women being treated the same, even if they present obviously different risks to insurers.

The change comes into effect on 21 December 2012, it seems many insurers will wait almost until the last minute before revealing exactly how their premiums will change.

But experts say that two things are obvious.

Young women will pay much more for their car insurance than they do now, while men will pay a bit less.

On the other side of the coin, women will get a better deal when buying an annuity - an annual pension - with the cash from their private pension policies, while men will get a worse deal than at present.

Car insurance

Insurers have used gender as a factor in calculating motor premiums for decades. So far among motor insurers there has not been much movement.

Price comparison websites make car insurance sales very sensitive to price

It seems they are afraid that if they move too fast they will lose clients who may jump to other firms who seem, for the time being, to be cheaper.

Firms will reveal their hands as renewal letters with quotes based on the new premiums will start to be sent to customers.

Graeme Trudgill, of the British Insurance Brokers' Association, says: "Younger females, under 30, will be the most affected as they currently have the heaviest discounts compared to males.

"Young women will pay noticeably more - men slightly less. But overall premium rates will go up," he warns.

Duncan Anderson, a spokesman on motor insurance for the Institute and Faculty of Actuaries, says insurers are being very cautious because if they get the pricing of their premiums wrong, they could easily vacuum up a lot of unprofitable business by accident.

"The way people buy car insurance these days is through price comparison websites," Mr Anderson says.

"Any inaccuracy in a pricing structure, so that a company underprices a particular segment of the country, or a particular type of business, means they can very quickly sell a lot of policies at a very unprofitable rate, which benefits the consumer, but not the insurance company."

The knock-on effect of this initial caution though is that many insurers will then adjust their rates quickly in the days and weeks after 21 December, which has been dubbed by some in the industry as G-day.

Annuities

Annuities are the annual pensions that people can buy with their personal pension pots.

Annuities for men will become less generous

As women live on average for a few years longer than men, the annual income they can buy with the same amount of money, at the same age, has been less than for a man, because the money has to last longer.

The giant insurance firm the Prudential revealed its hand a week ago.

Its gender-neutral pricing means that its new annuity rates have largely moved towards the old rates for men, rather than down to the old rates for women.

Tom McPhail, of the fund supermarket Hargreaves Lansdown, says: "This means that women are getting a significantly better deal from the Pru than they would have done; men are getting a marginally worse deal."

He warns that the annuity rates offered by insurers and brokers will be quite volatile, even after 21 December.

"There will be a huge marketing element in all this," he says.

"Annuity rates may change within days or even hours, depending on what they see their competitors doing."

Billy Burrows, of annuity specialists the Better Retirement Group, says the changes in annuity rates will depend very much on a customer's age.

"A man in his mid-50s will see a big drop in rates, but men in their 70s will see a very small drop."

"For women it will reverse: if you are young you will not see much of an increase, but if you are in your 70s you may get an increase of about 8%," he explains.

Life insurance

Richard Eagling of financial information service Moneyfacts says a lot of the companies are not declaring their new premium rates until the 21 December or a few days before.

New rates for life insurance will not settle down for some months after G-day

"With protection polices, term assurance and critical illness cover, only Skandia is quoting on a gender neutral basis so far," he says.

"There are not going to be any winners. The insurer Liverpool Victoria said that across the industry, term assurance rates would rise by 22% for females and 3% for males.

"Also, there are going to be changes to the way protection policies are taxed in 2013, so the two changes may be lumped together," Mr Eagling warns.

Many insurers are saying that they will stick by rates quoted in applications received before 21 December, so people in the process of buying a policy should not have the rug pulled from under their feet.

Emma Walker, of the big price comparison website Moneysupermarket.com, says the rates to be announced by the Legal & General insurance company on Wednesday 21 November will set the tone for the next four weeks.

"It is big, sophisticated and has put in a lot of actuarial effort, so it will set a bit of a benchmark for the industry," she says.

"The rest will either retain their current positions and watch what happens, or will undercut the L&G to attract more female buyers.

"The industry will only level out in the six weeks or so after 21 December, and then we will see what the effect has actually been," she adds.

What next?

The obvious question is why don't all the insurers get together and agree a set of standard reductions or increases to their current premiums?

Elizabeth Michael, another motor insurance expert at the Institute and Faculty of Actuaries, explains that this would be illegal.

"Competition legislation means they can't discuss with each other how they respond to these changes, and therefore because of that they are all slightly operating in the dark, in terms of the impact of the [ECJ] ruling."

And according to the Association of British Insurers (ABI) while firms have to enact the law, they do not have to explain in advance to new customers how their pricing structures will change.

"Existing customers may get an explanation on renewal of their policies, but individual firms will have different approaches to publicising their new premiums," she added.

The fact is, it will take several months for the industry to adjust to living without one of the most crucial clues to the risk a customer presents, and for the overall picture to become clear to customers.