EU ruling to increase insurance costs
'Unisex' rate set to turn the insurance industry on its head and could potentially increase the cost of premiums.
Insurers can no longer take gender into account as a risk factor when calculating the cost of insurance cover and annuities, the European Unions’ top court has ruled.
The ruling will mean insurers will have to radically transform the way annuities and various insurance policies are priced.
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One of the most affected areas will be car insurance. The Association of British Insurers (ABI) estimate that women under the age of 25 could see an average rise of 25% to their annual premium.
Most insurers calculate premiums for car insurance, life cover and annuities according to the risk associated with an individual. For example, it’s widely accepted that women tend to outlive men which means they pay lower amounts for life insurance while getting much worse rates on annuities.
Up until now, there were huge variations in the prices men and women pay for a range of policies, such as car and life insurance and annuities. These variations reflect the difference in risk attributed to either sex.
The decision which takes affect 21 December 2012 will ban the current standard practice of basing insurance rates on gender.
Car insurance to soar for women
According to the AA, young women have until now, paid car insurance premiums that are typically up to 50% cheaper than men. In the short term, they will see their premiums rise significantly while those for young men are likely to fall a little.
The AA's British Insurance Premium Index reveals that premiums in the Shoparound index over the last quarter of 2010 increased by 6.4% (33.2% over the year), to an average of £842.69. For young people, the increase was 15.1% over the quarter (58.3% over the year) to £2,251.
Many insurance industry experts agree with the theory that males tend to drive more aggressively than women, break the law more often and take risks when driving.
Young men tend to pay higher insurance premiums because they make more claims. These claims often reflect aggressive driving and risk taking such as high speed collisions, taking corners too fast or running red lights, says Ian Crowder of the AA.
According to the AA one out of every five new drivers has a serious accident within their first year. The average claim size for a young man is about £4,500, for a young woman it is just over £2,700. Further, under 21-year-old male drivers are ten times more likely to have an accident than drivers aged 35 and over.
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Male retirement income to fall
Currently the expectation that men will live shorter lives than women means that they receive higher income on a yearly basis from their annuities than women with the same size pension.
The ruling is expected to lower male annuity rates which will in turn diminish their retirement income.
According to the ABI, men could see their retirement income fall by up to 8% while women approaching retirement could see their income increase by as much as 6%.
The ABI estimates that women could see a rise of as much as 20% in the cost of life cover while men could see a reduction of 10%.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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