Insurance products for UK residents

Gender Differences and Insurance

On March 1st 2011 the ECJ confirmed the widely expected ruling that the use of gender as a means of discrimination in setting insurance premiums would be illegal from 21st December 2012 (21/12/12).

This ruling will result in the following anticipated changes in pricing.

  • Car Insurance : young female drivers will have substantial rises in premiums. Older female drivers will have increases but not as great.

  • Home Insurance : Gender is not used as a rating factor

  • Travel Insurance : Gender is not used as a rating factor

  • Caravan Insurance: Gender is not used as a rating factor

  • Pet Insurance: Gender is not used as a rating factor

  • Life Insurance: The cost of life insurance related products for females will increase

  • Pension: The value of an annuity for a male will decrease

  • Permanent health insurance: The cost for a male for PHI will increase.

The opposites will hold true but any decrease in premiums or increase in benefits will no doubt be less than the increases in premiums and decreases in benefits.

This ruling is a godsend to insurance companies that market directly to women, such as 'Sheila's wheels' and 'Diamond'.  Currently the motor insurance market is consistently losing money (for the last 14 years!) both on male and female drivers as the insurer had to price each type of driver competitively. However this has now changed to women-only companies advantage.

  • Let us assume that the premium for a male driver should be 2000 and for a female driver 1000. Currently each insurance company offers these rates and makes no money.

  • Now all drivers have to be charged the same amount. Is this 1,500? NO. The amount charged will depend on the ratio of male to female drivers for each company.

  • Suppose we have a company with a 50-50 ratio of men and women. They have to charge 1500 and will make NO PROFIT on the book of business.

  • Sheila's wheels can charge the same price 1,500 - and MAKE 500 profit on each person.

  • There is no incentive for males to go to Sheila's wheels as there is no price benefit for them (as well as being seen to be not 'macho')! Sheila's wheels will therefore keep its predominantly female book.

  • Sheila's wheels will target women drivers on its promotions (nothing wrong there) e.g. by offering a gift which is worth far more to a woman than a man (remember they have 500 profit a customer to look forward to).

  • Let us suppose they manage to obtain new business in a ratio of 2 females for every one male. They make a further profit on the excess of females over males.

  • The other insurance company now has fewer female policyholders - this means that there is less profitable business so they have to increase rates - to remain at a break-even point.

  • Sheila's wheels shadows this (making an extra profit on each price rise) and continues targeting women.

  • Eventually the insurance company will only have male drivers (for which they have to charge 2000) and Sheila's wheels will charge the same amount (2,000) for all their policyholders - making 1000 on each lady policyholder.

The corollary of this is that in 2011/2012 insurance companies will be desperately buying in female business and charging male policyholders substantially more.

Another factor to consider is re-insurance. Many insurance companies may have re-insurance facilities in place for women drivers aged 17 to 18 but not for male drivers. Application of this ruling will apply to re-insurance as well and it is possible that women aged 17 and 18 will find it much harder to obtain insurance cover.

For more information contact JB Portwood john.portwood#portwood.co.uk

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