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