Member Article

N.E Money on EU differential pricing developments

David Wilson, practice principal at independent financial advisers, N.E Money, shares his expertise on gender differential pricing.

On 1 March 2011 the Court of Justice of the European Union (CJEU) ruled that differential pricing based on statistical gender differences will be no longer permitted from December this year. Since then the Financial Services Authority (FSA), and the relevant organisations, have been working together to see what effect this will have on both the industry and financial services clients.

Gender differential pricing has always been a key feature in various aspects of financial advice, namely the underwriting and pricing of life insurance, critical illness and income protection. Currently women pay less for various insurances due to the proven statistic that women live longer than men (ONS, March 2012). However, the gender directive will see men and women’s insurance premiums align which could mean an increase or decrease from today’s average pricing.

Gender neutral rates will come into effect from the 21 December 2012 across all areas of insurance which could mean increases of up to 30% for some premiums, but also the possible reduction of some by 20%. This broad projection is partly due to the fact that as it stands insurers have not yet released their new pricing as well as different insurances currently attracting different underwriting. For example, whilst women statistically live longer than men (mortality) there morbidity rate (risk of disease or medical problems) is higher than men. This could result in insurance premiums for income protection, for example, decreasing for women with men’s potentially increasing.

Life insurance, critical illness insurance and income protection are all key financial planning tools for any business with the main aim being the long term security of the business and anyone dependent on that business. The gender directive will have an equal effect on these premiums as any pricing is driven by the individual insured and not the business. A positive outcome of the gender directive could be the attention that is given to the importance of adequate and applicable insurance. As a nation we are inadequately insured in many circumstances with statistics indicating that alone 82% of women have no critical illness insurance (AXA Life, May 2010).

In addition to the gender directive, and just over a week after it comes into force (1 January 2013) insurers will face another big change to how they operate. Insurers who use Income minus expenditure (I-E) accounting principles for protection business (life and critical illness policies), will be required to move to a profits taxed basis. This reflects the governments demand for a simplified taxation of insurance funds. Needless to say this change is predicted to increase premiums from January 2013.

Undoubtedly, and despite speculation of reductions, we can expect in the main these premiums to increase later this year. This does not present a problem to those people with existing contracts with providers as the premiums will remain as agreed. However, it is worth noting that any policies which are due to expire post 2012 will then be subject to the new rulings. At a time when cost management is critical in all business it would be advisable for both men and woman to review their future insurance needs, current arrangements, and affordability going into 2013. Ask your independent financial adviser for a protection review.

This was posted in Bdaily's Members' News section by David Wilson .