EU insurance ruling will hurt everyone
Ruth Jackson Mar 04, 2011
On Tuesday European judges decided that allowing actuaries to assess risk on the basis of sex was in violation of EU law on human rights. This bizarre ruling will hit everyone's wallet. Very few people indeed will benefit from the judges' decision to protect our human rights. Here's what it means for you.
The ruling will affect many different types of insurance, including health and life policies. But the biggest changes will be seen in car insurance premiums and pension annuities. Companies don't have to comply until December 2012. However, many will start to change premiums now.
Car insurers will have to increase women's premiums rather than reduce the cost of men's premiums. This is because male drivers are a far higher risk, and insurance costs reflect that. The British Insurance Brokers' Association (BIBA) estimates that male drivers under 21 are twice as likely to have an accident as women under 21. The average 18-year-old man's claim is for £4,400, compared to £2,700 for a woman of the same age. As a result, women drivers under 40 can expect to see their costs rise by as much as a third, whereas a 10% drop is all that is expected in young men's premiums. Some experts are also predicting that many insurers may now pull out of the young driver market as they will no longer be able accurately to assess risk.
In the meantime, the best way you can keep your premiums low is by building up your no-claims allowance, or consider taking out a 'pay-as-you-drive' insurance policy. This is where a black box is installed in your car and your premiums are calculated based on how far you drive and when you drive. This type of policy may well boom in popularity.
The other big losers from this EU ruling will be pensioners. Traditionally, men get paid a higher annuity income because they are expected to die sooner than women. The great irony of the EU judgement is that, in its attempt to protect women pensioners, it is actually reducing their income. This is because eight out of ten annuities are bought by men whose wives also rely on it for their pension.
Owing to the change, a man aged 65 buying a conventional annuity will probably see his income cut by 5%-10% a year, says Tom McPhail of Hargreaves Lansdown in The Daily Telegraph. Those buying joint annuities, which continue to pay an income to a surviving spouse after the death of the main annuity holder, will also see a cut in their income. That's because insurers won't be allowed to ask the sex of the recipient of the initial income. This is madness. It means shopping around for an annuity, to secure the best rate, is more important than ever.