e-mail Paul Lewis on paul@paullewis.co.ukInsurance companies will not be able to offer different deals to men and women from December next year. A ruling by the European Court of Justice will ban cheaper car insurance for women – who tend to be safer drivers – or higher pensions to men – who live a shorter time. It will also make life insurance more expensive for women.
The case was brought by a Belgian consumer organisation, Association belge des Consommateurs Test-Achats ASBL, which asked the Court to rule on whether it was legal under European Law for insurance companies to discriminate on grounds of sex between men and women. They do that when claims history or life expectancy show a clear difference between men and women. Europe has very tough laws which ban discrimination between men and women. Some things are allowed for particular reasons – such as separate men’s and women’s public toilets and changing rooms. But the different treatment of men and women in insurance was given a temporary permission and this was due to be reviewed next year. Now the Court has ruled that discrimination in insurance matters will end on that date – 21 December 2012. There will be three main effects in the UK.
Car insurance
Women pay less to insure a car because they are safer drivers and make fewer
claims. The difference is most pronounced for young drivers. The AA says men
aged 17-22 pay about £2,750 a year whereas young women of the same age will pay
barely about £1,680 if they shop around. The high cost – almost always more per
year than the car is worth – reflects the cost of damage done to the other party
who may well be driving an expensive vehicle or, of course, suffer an injury for
which large compensation may be due. The difference is less pronounced for older
drivers. At 50-59, men pay about 10% more than women. But according to the AA
the situation is reversed after the age of 70. On average, women over 70 pay
£150 more than men for their insurance. Though the difference is likely to be
most pronounced at much greater ages. That could be because many women start
driving again when they are widowed and are relatively inexperienced.
But from next December insurers will not be able to use the different claims history of men and women to set different premiums – they will have to offer the same deals to men and women. So premiums for women will certainly rise but just how much those for men will fall is still unclear but premiums are unlikely to meet in the middle. Insurers are struggling at the moment with a rising tide of insurance fraud and what has been described as a ‘carousel of costs’ as lawyers, repair garages, claims management companies, and even insurers themselves are paying and receiving fees for referring innocent victims of accidents to each other. Insurers claim they have not made a profit on car insurance for 14 of the last 15 years. So it is an ideal excuse to put up prices even further – they have already risen by a third in 2010 and before this ruling were expected to rise by another fifth this year. Women should insure their vehicle in advance of the change if they can.
Pensions
Another major change will be the equalisation of pensions between men and women.
At the moment insurers will give men a better deal than women when they buy an
annuity – a pension for life. A man aged 65 with £50,000 saved up could get a
flat rate annuity of £xxxx a year. But a woman would get about xx% more – £xxxx.
The difference reflects the fact that women of that age can expect to live
another xx years compared to xx for a 65 year old man. So a man’s money has to
stretch over fewer years and he therefore gets more per year.
From December next year those different rates will be outlawed and men and women will have to be offered a ‘unisex’ annuity. That will leave women much worse off for the whole of their lives but men only slightly better off. Insurers expect the unisex premiums to settle at not much more than men get now. The reason for that is simply the arithmetic. At the moment men buying annuities outnumber women by 4 to 1. When they have to be pooled together the effect of women pushing the rates up will only be a quarter of the force of men pulling them down.
The most important thing for anyone approaching the age when they want to turn their pension pot into an annuity is to get advice. Step one is to check if you have a guaranteed annuity rate from the firm you have saved up with. These guaranteed annuity rates were offered on older contracts – usually begun out before 1988. At the time the guaranteed rate was much lower than the rate prevailing at the time. But with annuity rates falling by nearly half over the last couple of decades these guaranteed rates can now be much more than the current rates on offer on the market. So check if you have one and consider taking it. Some companies will impose restrictions about the date you convert your savings into a pension – you may have to do it precisely on your 60th or 65th birthday. If you have no guaranteed annuity – and most people will not – then you should look for the best annuity on the market. That will almost never be with the firm you have saved up with. Again, good financial advice is well worth getting. There are other considerations such as what sort of annuity you want and whether you have health issues which could boost the payments. Always pay a fee and get a full rebate of the commission paid to the advisor – it will usually be much more than the fee charged.
Life insurance
The third area where
insurers currently discriminate between men and women is in life insurance. You
should always consider insuring your life if you have a financial dependant who
will be worse off if you die. It is also essential if you have a joint mortgage
(but not an equity release product) to make sure it is paid off when the first
person dies. This kind of insurance is fairly cheap. But it is cheaper for women
because they live longer and in any period are less likely to die than men of
the same age. From December next year women will pay the same as men. And again,
their premiums will rise more than men’s premiums will fall. Remember that the
best way to save money on life insurance is to check if you need it at all. If
you do not and no-one you love will be worse off if you die then cancelling it
is the best money saving option.
In all cases the insurers say there will be costs involved in changing their systems and assessing risks on the new unisex basis. The cost of that change will, inevitably, fall on customers.
At the moment there is no indication that the new ruling will have any implications for age discrimination in financial products. Older people inevitably pay more for travel insurance and, above a certain age, for car insurance. At the moment European law banning age discrimination only extends to employment and related matters. There is no European law which bans age discrimination in the provision of goods and services. The UK Government is consulting on introducing such a law but there will be widespread exemptions for financial services where there is what is called ‘objective justification’ for the difference.
e-mail Paul Lewis on paul@paullewis.co.uk