On International Women’s Day this year many European women may be feeling slightly lighter in the pocket due to one of the European Union (EU)’s latest dictats. As from 21st December 2012, insurers in the EU are no longer allowed to discriminate between men and women when charging motor insurance premiums.
The change comes after the Court of Justice of the European Union ruled that different premiums for men and women purely on the grounds of sex were incompatible with the principle of unisex pricing included in EU gender equality legislation, and with the EU Charter of Fundamental Rights.
“Gender equality is a fundamental right in the European Union and the Court of Justice made clear that this also applies to insurance pricing,” said Vice-President Reding, the EU’s Justice Commissioner. “The insurance sector has had over a year to prepare the switch over to unisex pricing and the European Commission has helped the industry to adapt during this period. The Commission will monitor how the industry will implement these new rules in practice. ”
More than just Motor
The ruling does not just apply to motor insurance, but also to life assurance/annuities and private health insurance.
The pricing of motor insurance policies in the UK has always taken into account a number of risk factors. It is not a matter of gender discrimination, but a matter of statistics; the fundamental tools that are so essential to the insurance world. Underwriters must have the ability to assess risks based on statistical observations and to price those risks accordingly.
Statistically, young female drivers have fewer accidents than their male counterparts. Why shouldn’t this be recognised in the premium calculation? It is true that no-claims discounts will eventually reward the less accident-prone drivers, but that does not help the 17 year-old who has just passed her driving test.
Life assurance is another area where actuarial tables have been an important consideration in the calculation of premiums. Statistically, women have traditionally been observed as outliving men by an average of 5 years. This makes their life insurance cheaper, but also makes annuities more expensive, so there is a balancing effect if one buys life insurance and a pension annuity. As long as mortality tables are separated by male and female and there is a measurable difference in respective life spans, why should insurers be banned from taking that difference into account?
Potential for Further Changes
There are plenty of other examples of risk-weighted pricing used by insurers. Age is the most notable example. Is it discriminatory against young drivers to charge them a higher premium than their older (and generally safer) counterparts? Will the EU move to make age discrimination in insurance illegal? What about postal codes? Some areas are more prone to car crime than others and insurers charge higher motor premiums to people living in those areas. Is that discriminatory? Yes; in the true sense of the word, but very sensible from an underwriting perspective.
Differential pricing is a matter of statistics. This latest legislation may well be the first in a series of measures that would severely restrict underwriters’ ability to do their jobs properly.
A version of this blog was previously posted on the 24th of December 2012.