This is potentially a serious issue for the motor insurance industry. A decision from the European Court of Justice is expected on 1 March on whether the use of gender to assess risk is unlawful. If the Court rules that this is so, it’s not known whether the industry will be expected to conform with immediate effect or whether a date at some time in the future will be set by which insurers should comply.
Simon Douglas, director of AA Insurance, says: “The use of gender in calculating insurance risk has been a thorn in the EC’s side for many years and indeed, the current UK use of gender in this way is against EC law although the UK has enjoyed derogation based on strong evidence of the UK’s risk-based approach to insurance. However, my fear is that the European Court of Justice will no longer tolerate such exceptions and the UK, and some other EC countries that use gender to calculate risk, will have to toe the European line.
“This will be particularly bad news for young women who are proven to present a much lower risk to insurers and at present, pay premiums that are up to 50% cheaper than their male peers. I expect premiums to increase substantially for them, while they will probably fall a little for young men.
“At the opposite end of the age range, there is again a gender difference but it is less pronounced.
“Insurers may look to use other risk factors as a proxy for gender – for instance occupation or vehicle type, but it isn’t clear to what extent this will be permitted if it constitutes a form of indirect discrimination.
If insurers are not allowed to use such an important risk factor as gender, there is an increased risk that premiums won’t cover claims costs and they will need to increase prices in aggregate to compensate for the additional risk. This is bad news for motorists generally although of course there will be winners and losers.
Mr Douglas summarises: “My view is that it will have a big impact for everyone. Insurers will need more margin to cover the risk of losses if gender can’t be taken into account.”
However, there is some correction already happening with premiums for young women rising at a faster rate than young men (aged 17-22) although there remains a considerable gap between the premiums paid by the sexes.
According to the AA’s benchmark British Insurance Premium Index, premiums in the Shoparound index over the last quarter of 2010 increased by 6.4% (33.2% over the year) to an average of £842.69. For young people, the increase was 15.1% over the quarter (58.3% over the year) to £2,251.
However the male-female differences are stark: although premiums for young women rose on average by 18.23% (70.8% over the year) to an average of £1,682, this is nevertheless more than £1,000 less than the £2,750 typically paid by men in the same age group, who saw premiums increase by 11.9% over the quarter (49.8% over the year).
Between ages 30 and 69, premiums for both men and women increased by between 20% and 25% over the year, with premium differences of just a few pounds between the sexes so most people in this age group (the majority of drivers) will see little significant difference.
Those considering buying a car for the first time now might be advised to take potential differences in insurance into account: for example, young women might well take advantage of lower premiums while they last, whereas men are more likely to benefit by delaying their decision until after any announcement is made.
Following table is an extract from the AA’s British Insurance Premium Index broken down by age and sex.
| Annual Shoparound motor movements by age and gender
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| Sex | Age | Average Premium | Shoparound | |||||
| Jan-11 | Jan-10 | Apr-10 | Jul-10 | Oct-10 | Jan-11 | Annual | ||
| Male | 17 – 22 | £2,750 | 9.60% | 2.80% | 14.70% | 13.50% | 11.93% | 49.80% |
| 23 – 29 | £1,341 | 15.40% | -1.40% | 11.20% | 10.70% | 12.57% | 36.63% | |
| 30 – 39 | £687 | 8.80% | 0.00% | 11.10% | 7.30% | 5.66% | 25.96% | |
| 40 – 49 | £621 | 10.30% | -2.50% | 7.90% | 10.30% | 6.90% | 24.05% | |
| 50 – 59 | £504 | 16.00% | -6.10% | 8.40% | 8.10% | 6.57% | 17.27% | |
| 60 – 69 | £446 | 9.00% | -0.80% | 7.80% | 11.80% | 6.02% | 26.75% | |
| 70 + | £564 | 9.40% | -0.10% | 11.40% | 11.70% | 8.69% | 35.12% | |
| Female | 17 – 22 | £1,682 | 9.90% | 7.00% | 16.90% | 15.50% | 18.23% | 70.81% |
| 23 – 29 | £868 | 12.20% | 3.10% | 11.40% | 10.50% | 9.49% | 38.96% | |
| 30 – 39 | £544 | 10.90% | -0.70% | 7.30% | 8.70% | 6.31% | 23.13% | |
| 40 – 49 | £532 | 13.80% | -2.20% | 6.90% | 12.20% | 6.53% | 24.97% | |
| 50 – 59 | £462 | 13.90% | -4.00% | 8.10% | 11.40% | 6.53% | 23.15% | |
| 60 – 69 | £376 | 9.20% | -1.60% | 6.90% | 8.20% | 6.04% | 20.69% | |
| 70 + | £401 | 4.20% | 1.40% | 9.90% | 2.30% | 3.59% | 18.10% | |
| All | 17 – 22 | £2,251 | 9.70% | 4.20% | 15.40% | 14.40% | 15.10% | 58.33% |
| 23 – 29 | £1,098 | 14.10% | 0.40% | 11.30% | 10.60% | 11.01% | 37.19% | |
| 30 – 39 | £617 | 9.70% | -0.30% | 9.40% | 7.90% | 5.99% | 24.73% | |
| 40 – 49 | £577 | 11.90% | -2.40% | 7.50% | 11.10% | 6.72% | 24.40% | |
| 50 – 59 | £481 | 15.00% | -5.10% | 8.20% | 9.80% | 6.55% | 20.13% | |
| 60 – 69 | £413 | 9.10% | -1.10% | 7.40% | 10.20% | 6.03% | 24.11% | |
| 70 + | £475 | 7.00% | 0.60% | 10.70% | 7.10% | 6.02% | 26.46% | |
Source : The AA Press Release
