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Topics: annuity rates| European Court of Justice| Tom McPhail| open market option| Pension
The ECJ has outlawed the use of gender in underwriting, which is likely to lead to a fall in annuity rates for men and increased costs for all.
All areas of insurance will be affected, with women facing increased car insurance premiums and some people potentially priced out of the life and health insurance markets.
A court statement reads:"Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination."
The decision takes effect from 21 December 2012.
Think-tank Open Europe predicts the rule change will require insurers to raise an addition £936m to cover new uncertainties.
Men stand to lose 4.73% of their annuity income under the ruling, according to figures from MGM Advantage, whilst women, whose annuity rates are generally lower than men's due to greater longevity, could see their income raised by 7.77%.
MGM says a 75 year old man with £25,000 could previously currently secure an average yearly income of £2,182.40. Under unisex annuity rates, he will receive an average of £2,083.88 or £98.52 less.
However, women are likely to suffer with men, as many women are dependent on joint life annuities purchased by their husbands or partners and have no private provision of their own, Billy Burrows, partner at Burrows and Cummins warns.
Mercer warns the decision will make insurance more expensive in general as insurers will be forced to create stricter underwriting tests, moving more quickly towards individual underwriting as a matter of course for all products.
Peter Staddon, head of technical services at the British Insurance Brokers Association, warns higher premiums will mean fewer people take out health cover as they are already facing higher living costs and pay freezes.
Tom McPhail, head of pensions research at Hargreaves Lansdown, says the decision will increase demand for drawdown and make shopping around for annuities even more essential than before.
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| Comment | ECJ ruling: Gender-based underwriting banned from Dec 2012 |
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It is an Insurers Risk
Has the world gone mad...........I think not. It is just Europe that has.
Posted by: KS
Not Surprising
It was obvious this would be the outcome. Looking at it, nobody can win here. Higher premiums in other areas coupled with the lower annuity of (usually) the main retirement income of couples means that not just men, but many many women will be worse off because of this decision. Real life does not seem to strike a chord with lawmakers.
Posted by: Stuart
Lost For Words
This makes the RDR appear sensible and the FSA seem wise. Asylums.....madmen.....?
Posted by: Alan Lakey
Actuarial Tables...
As I understand it, the calculations for annuity rates start with actuarial tables. A collection of data showing, statistically, with no fooling around with the numbers, how long a person is expected to live. There is a difference between the life expectancy of a woman and a man, much as there is between a smoker and a non smoker. How are these tables to be used now? I fail to see the logic.
Posted by: Stuart again
Eh?
OK: on that basis, then, drivers with 30 years experience and a clean licence should pay the same insurance premium as a 19 year old who's just passed their driving test, as otherwise, descrimination will clearly be evident. How many millions did it cost to come up with this drivel?
Posted by: John Palfrey
more chaos/more cost
well when something is working well and sensibly priced..lets change the whole thing round for political reasons.....do you know if the European Court presided over newsagent shops.you would get your Sunday PAPER on tuesday and it would be twicw as much!
Posted by: david young
Gender based underwriting
Given that motor insurance premium will increase if there is a history of claims or convictions why can't the industry draw up a table which shows young females do not get involved in as many claims as young males so are a better risk? Based purely on proven numbers -nothing to do with gender Too simple?
Posted by: David Johnson
What about the commerical consequences
Exactly what will happen to an organisation (it) or an individual (they) if it or they ignore these stupid ECJ rulings. Will anyone get fined ? or go to Prison ? The Directors of Banks brought the country to its knees and none of them have been brought to book. Sants & Co at FSA were asleep on the job and none of them have been sacked. So what happens if UK businesses choose to ignore the ECJ ruling .....now that would be fun to see what Brussels would do !
Posted by: Roger
Wider implications
I thought that insurance differentiated rather than discriminated. Men and Women, in certain aspects are different and in certain case's should be treated as such. But what about the wider implications, Age, disability. Will my car insurance premium now match that of a 18 year old hot headed male who is at greater risk of accident? Not sure common sense has prevailed here.
Posted by: Matt Butterworth
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