Car insurance and gender

Court decision could result in a jump in premiums for young women

21 February 2011

A European Court of Justice decision due to be announced on 1 March, could stop the UK and some other EU countries using gender as a basis for calculating risk for car insurance.

Young women drivers pay premiums that are almost half of those paid by young men but if the court rules against current UK practice insurance premiums for young women would jump significantly. Premiums for young men may fall a little.

Tow the line

According to Simon Douglas, director of AA Insurance, "the use of gender in calculating insurance risk has been a thorn in the EC's side for many years.

"In fact 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.

"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 would 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.

At the opposite end of the age range, there is again a gender difference but it is less pronounced.

Other risk factors

Insurers may look to use other risk factors such as occupation or vehicle type as a proxy for gender but it isn't clear whether this would be permitted either 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.

Such a decision 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.

Comparing premiums

There is some correction already happening with car insurance 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 British Insurance Premium Index, premiums in the Shoparound index over the last quarter of 2010 increased by 33.2% over the year to an average of £842.69. For young people, the increase was 58.3% over the year to £2,251.

Male-female differences are stark: although premiums for young women rose on average by 70.8% over the year to an average of £1,682, this is still more than £1,000 less than the £2,750 typically paid by men in the same age group, who saw their premiums increase by 49.8% over the year.

Between age 30 and 69, premiums for both men and women increased by between 20% and 25% over the year. There are 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.

What to do?

If you're considering buying a car for the first time now you should take potential differences in insurance into account – 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.