Arising from a ruling on a case brought before the Court of Justice of the EU, since December 21st insurance companies are no longer allowed to quote you a different price for your insurance based on your gender. Unisex premiums and benefits are provided from this date.
The types of policies affected are all insurance policies that previously used a customer’s gender when calculating a premium or benefit. These policies are life insurance, serious illness cover, income protection, annuities & motor insurance.
Below I have given a brief synopsis on how you might be affected from the change in any of these insurance policies and the importance of reviewing your existing policies.
Life Assurance
For females, the cost of life insurance was typically 25‐30% less than the cost for males. Throughout history, females have tended to live longer than males and currently females live on average about 5 years longer than males. The reasons for this are not completely clear – it has been speculated that this is due primarily to lifestyle and occupation factors, rather than genetic factors. For example, males tend to drink more alcohol than females and also tend to have poorer quality diets. Both of these factors tend to result in females living longer. In addition, males tend to have much higher rates of suicide than females and are much more likely to die as a result of a road traffic accident.
However, there is also some evidence that females are genetically more likely to live longer. Females have higher life expectancy in all countries in the world, and longer female life expectancy is also found in most animal species. The gap between female and male life expectancy has been gradually declining in recent years, presumably as a result of female and male occupations, and lifestyles, becoming more similar.
Whatever the exact breakdown of the different factors which go into explaining the gap between female and male life expectancy, life insurers previously found gender to be a very useful proxy for the various risk factors involved. Since 21st December, this approach is no longer possible.
Serious Illness
The previous rating approach for Serious Illness cover was similar to that used for Life Insurance i.e. the main rating factors used were age, sex, and smoker status. Again, smokers continue to pay much more for their cover than non‐smokers. While males are more likely to suffer from heart related serious illness and stroke, females are more likely to be diagnosed with cancer, particularly at younger ages. Overall, these factors balance each other out so that the price difference between males and females for serious illness cover is much smaller than for life insurance. The difference varies by age, and in some cases females pay more than males while in other cases males pay more.
Therefore, the impact of gender neutral pricing on serious illness pricing is likely to be small. The gender neutral rate will be calculated by insurers based on their expected mix of business, and is likely to be close to both the current male rate and the current female rate. It is anticipated that neither males nor females will see a major change to the cost of serious illness cover after 21st December.
Income Protection
For Income Protection products, insurers used a somewhat more sophisticated pricing approach, taking account of occupation class in addition to the usual factors of age, sex and smoker status. Occupations which are office based typically pay a lot less than occupations involving significant manual work. For some occupations, insurers do not provide income protection cover because of the high risk of injury or disability.
All other rating factors being equal, females were previously charged 50‐60% more for Income Protection cover compared to males. In setting a gender‐neutral price, insurers will take account of the expected mix of business, in the same way as on other product lines. This is likely to result in a rate which is closer to the current male rate than to the female rate, because insurers will not expect a major change to their mix of business. Therefore, females requiring income protection cover might be well advised to review their cover, and the price they are paying for it, after the introduction of gender neutral rates.
Annuities
Annuity pricing in Ireland previously used a simple rating approach, taking account only of the sex and age of the client, with no allowance for smoker status or for the health of the individual. For the same reasons that females paid less for life insurance, females paid more for annuities – typically about 5% more. With the introduction of gender neutral pricing, males are likely to see a small reduction in the annuity they can purchase, while females will see a small increase.
Motor Insurance
The change in the law means that young women are now the most seriously affected and are likely to see sharp increases in the premiums they pay.
Young women have until now paid car insurance premiums that are typically up to 50% cheaper than men. That's because women have fewer and less serious crashes than young men.
Historically, the price of car insurance for women has been cheaper than for men as actuarial data has consistently presented men as a higher risk for motor insurance. As a result of the ruling, insurance companies must implement the same pricing for both men and women to ensure equal treatment between genders. This is likely to impact the cost of insurance for women drivers purchasing and renewing policies from the end of 2012.
Impact on existing business
Life insurance contracts are typically written on a long‐term basis. This change does not impact the premium rates which Life insurers can charge on existing contracts, even where gender has been taken account of in calculating those rates. This means that clients with existing contracts need not worry that their premium rates could be increased as a result of the introduction of gender neutral pricing. However, life insurers need to be aware that any changes made to an existing policy, which are not part of the original terms and conditions, may result in a need to apply gender neutral pricing to the policy.
Conclusion
This is a significant change to the insurance industry in Ireland. The impact of gender‐neutral pricing will vary depending on the product line, and insurers are likely to take a prudent view on calculating gender‐neutral rates until the market settles down. With this change in mind, it is vital that each individual review their existing policies to ensure that they are receiving correct value for their premium.
Quintas Wealth Management Limited is regulated by the Central Bank of Ireland.
