So what does this mean for premiums? Will there be huge upheaval from December 21 – known as G-Day? Who’ll pay more, and who’ll pay less? And, most importantly, is there anything we can do in the next few weeks to save money and secure the best deal?
Gender on the agenda
Jaws dropped across the insurance industry when the ECJ made its ruling in 2011. This was because, with a product such as motor insurance, women have typically enjoyed lower premiums precisely because of their lower accident rates, as borne out by hard-boiled analysis of claims data.
In other words, from a pricing perspective, it can be shown that women drivers, on average, fully deserve to pay less than their male counterparts. No wonder insurers were bemused and perplexed by the ECJ decision.
The same pricing – what insurers call ‘underwriting’ – principle applies to life insurance. It’s a fact of life (!) that women tend to live longer than men. That means men are more likely to claim on a ‘term’ life policy that is arranged for a specific number of years, so their premiums are higher.
Even with a ‘whole of life’ policy, which is certain to pay out on the policyholder’s eventual death, women tend to pay less because the statistics suggest they’ll be alive and paying their premiums for that much longer.
This is why an insurance proposal form asks for your gender very early on – it allows the insurer to work on the basis that you belong to a particular known risk category. But that’s what’s changing once the G-Day ruling comes into effect.
In fact, it’s changing already. Complex policies such as life insurance can take weeks or even months to sort out, especially if medical evidence is required. So insurers are already adapting their processes so as not to transgress the new rules when they come into effect in December.
Gender is only one factor taken into account when insurance premiums are worked out, and it is more significant with some policies than others. But the ECJ judgment will undoubtedly have a big impact.
Otto Thoresen, head of the Association of British Insurers, said: “Insurers and the UK Government fought for nearly a decade to retain the right to offer premiums and benefits priced as accurately as possible by considering risks linked to gender. But now that battle is over, the industry is focused on preparing to give customers 'gender-neutral' rates that are as fair as possible.”
Types of insurance under the spotlight – and why
Women are deemed to be a lower risk because they have fewer accidents than men, and the accidents they have tend to result in smaller claims. This will presumably remain the case in the future, so insurers are looking at ways to justify lower premiums for females without relying simply on their gender to guide their calculations.
Insurers may come to rely more heavily on ‘telematics’ policies, where the driver’s performance and vehicle usage are monitored by black box technology installed in the car. This will allow them to scrutinize the way the vehicle is driven and reward or penalise safe or risky drivers with lower or higher premiums.
Rumours abound that women might see a 30% leap in premiums when they renew after G-Day, but we’ve had no confirmation of this figure – nor of by how much men’s premiums will fall, if at all.
Talk to an insurer about life insurance and pretty soon they’ll throw in the phrase ‘mortality rates’ – the facts and figures about life expectancy and the age at which people actually die.
The mortality statistics show that women live longer, but without being able to make reference to gender in their pricing, they won’t be able to justify lower premiums for females – or higher ones for men. So we can expect some significant adjustments, although we don't yet know to what extent premiums will rise or fall.
Another major factor affecting life insurance premiums in 2013 will be changes to the way life insurance companies are taxed. In the past they have been able to offset losses from their life insurance business against profits from their investment portfolios, reducing the amount of tax they have to pay.
This ‘income minus expenses’ accounting technique will no longer be available to insurers from January 1, 2013, putting pressure on men’s and women’s premiums alike. The additional impact of the gender ruling on women’s premiums means that women should buy life insurance well in advance of G-Day to avoid paying substantially more in the New Year.
Read our insurance expert Emma Walker’s thoughts on the gender ruling here.
Critical illness insurance
Most critical illness cover (which pays out on diagnosis of a listed disease during the term of the policy) is bought alongside life insurance, and this tends to bring the total premiums down for women relative to men.
That said, high levels of breast and other cancers in middle-aged women tend to force women’s premium rates up in some cases. But once again, any matters relating purely to gender will be excluded from premium calculations by the G-Day ruling.
The ‘income minus expenditure’ tax changes faced by life insurers mentioned above are expected to result in increased critical illness insurance premiums for both sexes where life cover is part of the overall package.
Income protection insurance
Women have historically tended to make more claims on income protection policies, which pay out when the policyholder falls ill or is injured and cannot work or is made redundant, so they usually pay higher premiums.
When the gender ruling is implemented, women’s premiums will fall and men’s will rise. Again, we don’t yet know by how much.
When you buy an annuity, you pay a lump sum to an insurance company which promises to pay you an annual income for life in return. So the longer you’re likely to live, the lower the annual income will be – and vice versa.
Given that women, on average, live longer, they tend to receive a lower annual income while men get more because the statistics suggest they’ll die sooner. With the gender factor taken out of the calculation, the annuity providers will focus much more attention on the health of the individual, along with their family medical history, lifestyle, occupation and where they live.
So expect a lot more detailed questions when you apply for an annuity and the annuity provider tries to build up a detailed picture of the actual risk you represent.
Will my current policy be affected?
Not at the moment – the changes will only come into play if and when it falls due for renewal. All new policies will be affected by the change, however. This will be in the run-up to December 21 for products such as life and critical illness insurance and annuities, and after that date for car insurance and income protection cover.
If, after December 21, you make a change to an existing policy while it is running (or ‘mid term adjustment’, as your insurer will describe it), you could end up being charged an additional premium because the gender rule has come into play. So if you are thinking about making a change, it could be worth exploring the implications of doing so before or after G-Day.
We always advise car insurance policyholders to shop around well in advance of renewal since current insurers rarely give customers their best prices. As and when your policy comes up for renewal, visit our motor insurance comparison channel and see what other prices are available across the market.
If your motor policy runs until well into next year, you might be tempted to cancel the contract and take out a new one at this year’s prices. But proceed with caution: the cost of cancelling your old policy might outweigh any savings you make on the new one.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.