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ECJ gender ruling - impact for professional liability and motor insurers

3 March 2011
Impact for professional liability and motor insurers 4 March 2011

The European Court of Justice has this week ruled that insurers will no longer be able to use gender as a factor in the calculation of insurance premiums and pension annuity rates.

The ECJs ruling in Association Belge des Consommateurs Test-Achats has determined that taking into account the gender of an applicant as a risk factor in insurance contracts constitutes discrimination and will be unlawful from 21 December 2012.

This has implications across the insurance spectrum, with the gender shown by statistics to represent less risk, now facing the prospect of cross-subsidising the higher risk posed by the other sex.

Professional liability underwriters warned that claims against IFAs will be more expensive

The ECJs ruling will have a material effect on pension annuity rates. Typically, male annuities are less expensive than an identical annuity for a female because male life expectancy is lower than that of a woman. The ABI has indicated that the income an annuity provides for a male could fall by 8, whereas women might enjoy a rate increase of around 6. Given that the majority of annuity providers are male; this is likely to have a significant impact.

Obviously, if the cost of annuities increases, dealing with claims against IFAs will become more expensive where it has been alleged that unsuitable advice was given in connection with a transfer from an occupational pension scheme because, the cost of replacing the retirement income lost as a result of the transfer will increase.

As the cost of annuities will become increasingly volatile prior to the likely sharp increase from December 2012, claims could also arise against IFAs if clients are not advised of the risk that the same annuity will be more expensive after the December 2012 cut-off point.

Professional liability underwriters who insure IFAs should therefore pay extra attention to the volume of pension transfer business IFAs undertake and, from a risk management perspective, ensure that the IFAs they insure are well aware of the December 2012 date and the likely subsequent rise in prices for male annuities.

Insurers to face challenging times in light of the impact on the motor industry

While annuities for men may become more expensive, male drivers can expect to benefit from their motor premiums being brought in line with those of women, who pose a lesser insurance risk.

However, without the ability to use gender as a means of assessing risk, insurers will need to give careful consideration to their risk criteria and to the factors which they should use in setting premiums. This is likely to create a period of market uncertainty as revised criteria bed in.

Increased premiums, particularly for women, could well have an adverse impact on levels of uninsured driving and could encourage incomplete or inaccurate disclosure on insurance applications. The problem is likely to be exacerbated by current economic conditions and by the evidence that women continue to be less well remunerated than their male counterparts.

Insurers whose target market is female drivers will, of course, be affected but competition within the broader industry may also increase as policyholders react to changing premiums. Insurers will face challenging decisions over when and how to begin to align their premiums for male and female drivers, without losing business.

Age discrimination - the next step?

Concerns have also been raised over the possibility that future rulings may prevent insurers from using age when determining premiums.

The Government this week announced its plans in relation to the restriction of discrimination based on age in the provision of goods and services. However, the Government proposes to permit specialist providers to target their products at particular age bands and, to permit age to be used as a factor when assessing risk, for example in insurance, subject to the assessment being based on empirical data, made publically available.

These proposals are currently up for consultation and more information is available on the Government Equalities Office website.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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