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Insurers must treat men & women equally

Retirement | Annuities

By Justin Modray, published 01 March 2011.
Helpful? 15

The Eurocrats latest decision confirms common sense is an increasingly endangered species.

The European Court of Justice has today ruled that insurers cannot vary premiums or annuity rates between men and women because of their gender. The insurance industry will have to adopt the new rule by 21 December 2012.

Although yet another example of political correctness gone mad (has April Fools' day come early?), for many of us the implications could be pretty significant.

Let's take a look at the impact on the main types of insurance this will affect. My estimates for rates/premiums under the new rules assume business is split 2/3rds to 1/3rd between men and women, which might be incorrect, but these figures nevertheless give a reasonable guide as to what will probably happen.

Pension Annuities

Annuities are basically a bet with the insurance company on how long you'll live. Because women tend to outlive men their annuity rates are lower.

Annuities purchased before the new rules are introduced will be unaffected. But thereafter women will likely receive a higher annuity income than at present while men will see their income fall (other things being equal). To gauge the extent this could affect pension income let's look at an example:

Figures show annual income from a £100,000 level single life pension annuity for a non-smoking 65 year old:

CurrentEstimated newAge ExpectancyEstimated difference
in lifetime income
Male £6,696 £6,576 86 years -£2,520
Female £6,336 £6,576 88.3 years +£5,592
Current annuity rates sourced from FSA Comparison tables.

Ignoring other factors that impact annuity rates (namely, gilt prices) men due to purchase an annuity in the latter half of 2012 should probably not delay while women in the same situation might benefit from delaying until the rules kick in. The ruling could also increase the appeal for men of drawing an income from their pension instead of buying an annuity.

Life Insurance

Life insurance policies are also a bet on how long you'll live, so women generally enjoy lower premiums than men at present.

Figures show monthly premiums for a 20 year level term assurance policy with £200,000 of cover for a non-smoking 30 year old:

CurrentEstimated newProbability of dying before 50Estimated cost difference
over 20 years
Male £13.08 £12.16 1 in 28 -£221
Female £10.32 £12.16 1 in 48 +£442
Current premiums sourced from Cavendish Online.

The new rules will mean women getting the short straw, with higher premiums, so buying a policy under current rules might be sensible, provided the premiums are guaranteed to be fixed throughout the term. While men might enjoy lower premiums after 21 December 2012, if you want to take out cover I wouldn't risk waiting until then. Buy a term assurance policy now and you should be able to cancel, without charge, in favour of a cheaper policy in future.

Income Protection

Although women tend to live longer than men, they are more likely to suffer from illness necessitating extended time off work. So income protection premiums are generally more expensive for women than men.

Figures show monthly premiums for a non-smoking 30 year old earning £50,000 with £2,083 of monthlycover until age 65, deferment period 4 weeks:

CurrentEstimated newEstimated cost difference
over 35 years
Male £40.06 £49.50 +£3,965
Female £68.39 £49.50 -£7,934
Current premiums sourced from Cavendish Online.

There's potential for a pretty big shift in premiums here, so men could very likely benefit from buying policies under current rules provided the premiums are guaranteed to be fixed. Some policies have reviewable premiums, which I suspect will have to change in line with the new rules, so these are likely best avoided from a male perspective.

Car Insurance

Despite male jokes about women drivers, females actually have fewer claims (on average) so their car insurance premiums are generally lower than men's.

Because car insurance quotes can vary so widely I haven't run a comparison here, but industry consensus seems to be that premiums for women could rise by 25% or more under the new rules, while men's premiums will generally fall. The trouble is because car insurance premiums are reviewable each year there's no way of locking into current rates long term .

Is there hope for any sanity?

I've long given up hope of sanity emanating from the bureaucrats in Brussels. But insurers might be able to retain a link between insurance premiums and the likelihood of a claim being made via tighter underwriting. For example, professions, postcodes and health history could have a greater influence over certain premiums than they do at present. And those professions which tend to be dominated by one gender or the other could be ripe for some 'closet' insurance premium sex discrimination.

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Readers' Comments (2) - To post a comment please register or login .

Comment by goingsouth at 4:51pm on 05 Mar 2011:

This sounds a little odd being a male. Is there any chance of getting an increase in my wifes pension even though she has been recieving it for 3 years. This will bring her pension on PAR with a man of her age, sounds fair to me.

Comment by justin at 9:52am on 08 Mar 2011:

It is odd! Won't be retrospective and you could argue it discriminates against males on the basis females will likely receive more from an annuity due to living longer - and against females because they'll pay more for life insurance although less likely to claim (on term assurance) than males. Strange world...