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What the gender ruling means to financial firms

What the gender ruling means to financial firms

Financial services firms will have to overhaul pricing of insurance, annuities and health cover following the European Court of Justice ruling that pricing based on gender is banned from December 21, 2012.

The decision has a major impact on the cost of financial products to consumers as many companies sell on the basis of gender and risk.

Basically, insurance firms are professional risk takers. The basic business model is to calculate the cost of insurance so that the premiums generate a large enough pool of money to pay out any claims made against policies while leaving a margin to run the business and make a profit.

Premium costs are costed on the risk of a claim. For instance, young women drivers under 25 statistically have less accidents than their male counterparts, and if they do claim, the average cost is less than that of men.

The average 18 year old male claim cost is £4,400 compared to the average 18 year old female claims cost of £2,700, says the British Insurance Brokers Association.

This lets car insurance firms charge women drivers less than men. Other insurance products are affected as well –  women live longer than men, so gender affects the pricing of annuities. Women often suffer more gender-related illnesses than men, so the cost of health cover varies between the sexes as well.

The court ruling stops financial firms offering the price differentials based on gender.

Belgian consumer group Test-Achats initiated the case by questioning if offering different pricing for insurance to men and women was gender discrimination. The full court ruling states that insurers cannot fall back on the opt out clause of the European Union gender directive that previously let firms offer men and women different pricing.

Steve Foulsham, BIBA Technical Services Manager, said: “Unisex rates will have to apply for motor insurance with the likelihood of an increase in premiums for females which could typically be up to 25% but in some cases more than 50%. However it’s unlikely that premiums for male drivers will reduce much as their risk is still considerable.”

Age discrimination is an issue as well

In a separate move by the UK government, financial firms also have to consider age discrimination in marketing and pricing.

The government has launched consultation on a proposal to extend age discrimination in the workplace to cover the provision of goods and services from April 2012 as well.

Financial firms can still factor age in to their calculations but must base business decisions on solid evidence rather than simply imposing a ban on selling to customers because of age.
The change will not outlaw firms like Saga selling to the over 50s or other firms selling to under 30s, but will require them to show why their products are not suitable to other age groups.

Insurers have agreed to help people find an alternative provider if they are unable to provide cover for age-related reasons by signposting other organisations.