In March 2012 the European Court of Justice ruled that the use of gender as a risk factor by insurers should not long result in individual differences in premiums and benefits for men and women. The ruling will take effect on 21 December 2012 and will apply only to new contracts entered into after this date, meaning that people with existing contracts will not be affected.

In response to the court ruling the Government expressed disappointment and has continued to believe that the judgement is detrimental for consumers. In a press statement issued in December 2011 Mark Hoban, the Financial Secretary to the Treasury, said:

“While nobody should ever be treated unfairly because of their gender, financial services providers should be allowed to make sensible decisions based on sound analysis of risk. We continue to work hard with other Member States and the Commission to secure legal certainty for industry and reduce any detrimental effects for consumers.”

The likely impact, according to the Government, that the ruling will have on consumers is that their premiums will increase significantly, especially those in lower-risk categories, thus subsidising the reductions for consumers in higher-risk categories. The Government believes this ruling will lead to the following three main outcomes, all of which affect consumers:

  • A cross-subsidisation of premiums between genders.
  • Adverse selection will operate to increase the cost of insurance generally and incentivise riskier behaviour. As fewer low risk people (i.e. women) take out insurance, then the insurer’s portfolio becomes increasingly risky, and the cost of insurance has to rise to compensate.
  • In the field of motor insurance, studies have indicated that gender-neutral pricing would have consequences for road safety. As premiums for (generally higher risk) male drivers fall, then they may purchase higher-powered cars or increase the riskiness of their driving.

This, the Government believes, will lead to some consumers either leaving the market or taking a lower level of cover, affecting insurers’ revenues. The way the Government sees insurers minimising loss of revenue is by providing a more competitive quote to the consumer but it is unsure precisely to what extent this will affect the industry.

We will be keeping our eye on this interesting and relevant issue. More updates to come over the next month.