Insurance: Equality ruling could be bad for everyone

An EU directive has seriously upset pension advisers and insurers before it has even been confirmed that it will come into existence. The European Court of Justice (ECJ) is set to rule at some point in the coming months on whether it is still legal for actuaries to use someone’s sex to calculate risk. If the ECJ decide that they can’t, how big will be impact be for you?

Insurance companies use a person’s sex as part of their risk assessment and charge them premiums accordingly. So young males pay more than young females, as more accidents are caused by boy racers. If the EU’s proposed rules comes in, male and female drivers would in theory have to be charged the same. The upshot, according to advisers? A big increase in premiums for women. The same rules would also cover life and health insurance where sex is used to assess premiums based on differing life expectancies.

All this has led to some borderline hysterical articles in the papers with talk of insurance premiums jumping 25%, or insurers even refusing to cover young drivers. But if the new law comes in – and it may not – some premiums might not change too much. Some insurance firms have already suggested they could use creative new risk factors to sidestep the rules. For example, car insurers could ask applicants their shoe size, rather than sex, and charge more if you have big feet (presumably as a man). Or they could assess risk based on your car – around 90% of three-litre cars are driven by men and 90% of one-litre cars by women.

Pensions would also be affected by the new ruling. Annuity payouts differ depending on whether you are male or female. Men typically receive a higher annual annuity income, in return for the same lump sum investment.

That’s because they’re expected to die earlier and so will cost an annuity provider less in the long term. For example, the average 65-year-old man could get an income of £3,274 a year from a £50,000 pension fund. Meanwhile, a woman would get £2,993, says Emma Simon in The Daily Telegraph.

The impact of the new rule on annuities could be quite severe. Eighty percent of annuities are bought by men and are used to support a couple. If the equality ruling comes into force, rather than making things fairer for men and women it could mean everyone loses out. That’s because the unisex rate is far closer to the current female rate than the male one. Take the earlier example: some pension providers quote a unisex rate that would generate a £3,049 income. If that becomes the norm, the EU could put couples out of pocket.