Tuesday 23 January 2018

How new ruling will affect drivers' premiums

Charlie Weston

Charlie Weston

Q: What exactly does the ruling say?

A: The European Court of Justice has ruled that using gender as a risk factor in setting premiums for insurance cover such as car and life insurance, and for setting pension annuity rates, breaches EU rules on equality.

Q: What impact will it have?

A: Insurers will no longer be able to base their premiums on statistics about life expectancy or road accident rates for different sexes.

As a result, they will no longer be able to charge higher motor premiums to young men to reflect the greater risk of males having an accident.

Insurers will also not be able to offer higher pension annuity rates to men because they are not expected to live as long as women.

But it will have no impact on private health insurance premiums. That is because everyone in this market, irrespective of age and gender, pays the same health insurance premium due to what is called community rating.

Q: So are young boy racers the real winners here?

A: Not necessarily. These young motorists are fond of high-performance cars and tend to have more accidents, and therefore make more claims, than female or older male drivers. This is why they end up paying up to €600 more a year for motor insurance.

Young men could see some reduction in their premiums but far more likely is that all drivers will be forced to pay higher premiums, with women being hit hardest. This is because the new rules will create huge uncertainty for insurers. For example, will fewer women buy insurance if they have to pay the same rates as men? Insurers will compensate by pushing up rates for all, according to AA Ireland.

Q: How does the ruling affect pensions?

A: People with defined contribution and personal pensions use their pension pot to buy an annuity when they retire, to provide them with a regular income for the rest of their life. Men get a better pensions annuity deal because they die faster, meaning the annuity has to be paid for a shorter period. But the change is expected to penalise men more than it benefits women.

Q: When does it come into force?

A: On December 21, 2012, giving insurers a transitional period in which to adjust their rating structure.

Q: Is there any chance insurers will be able to appeal against the ruling?

A: No.

Q: Will insurers be banned from basing their premiums on age next?

A: The banning of risk assessment based on gender could indeed have implications for other criteria such as age. There were some suggestions yesterday that the EU is looking at banning insurers from charging older people more than younger people for insurance. But insurers insist this would cause the collapse of the life insurance business, in particular, as older people are statistically more likely to die.

If age cannot be reflected in premiums then life insurance would become so expensive that no one could afford it.

Irish Independent

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