Gender Directive Affects Car Insurance

Gender decision 'unfair', says AA

Following a ruling in March by the Court of Justice of the European Communities, from December 2012 insurance companies won't be allowed to take gender into account when they calculate car insurance premiums.

In 2004 the Gender Directive made sex discrimination in all European countries illegal.* But for insurance the UK and a few other countries enjoyed an opt-out that enabled them to continue to use gender as a basis for calculating risk.

Simon Douglas, director of AA Insurance, says: "This is a very disappointing decision.

"The use of gender in calculating insurance risk has been a fundamental principle of the UK's risk-based motor insurance structure for decades, although it has been a thorn in the EC's side for a long time.

"Now the Court has ruled that this opt-out is not compatible with the principles of equality guaranteed in European legislation."

Simon says that this will mean that the premiums quoted for men and women will, from December next year, have to be the same.

"However, it's important not to confuse equality with fairness," he says. "The calculation of car insurance premiums based on risk is by definition fair, but is incompatible with gender equality."

The change in the law means that young women will be the most seriously affected and are likely to see sharp increases in the premiums they pay.

Young women have until now paid car insurance premiums that are typically up to 50% cheaper than men. That's because women have fewer and less serious crashes than young men.

Nevertheless, Simon believes that insurers will quickly start to adjust their pricing in a way that puts greater emphasis on the individual risk presented by motorists. "This is an extremely competitive market," he points out. "We are likely to find that the initial increase will start to be eroded as insurers begin to develop a more sophisticated response to the loss of gender for rating purposes.

"But following the Court's judgement, I fear that many insurers will find the young driver market too risky and pull out altogether. That would reduce competition, leading to higher prices."

According to the AA's benchmark British Insurance Premium Index (fourth quarter 2010), premiums in the Shoparound index increased by 33.2% over 2010 to an average of £842.69. For young people aged between 17 and 22, young men can currently expect to pay an average premium of £2,750 and young women £1,682.

Looking ahead, Simon says that the insurance industry is working on a range of new initiatives such as technology-based insurance that tracks driving standards. "This could help to make car insurance more affordable, especially for young drivers. It will naturally identify the more risk-averse drivers, mainly women, who will enjoy reduced premiums. And for those who take risks and drive aggressively, mainly men, premiums would be higher – while it would also encourage them to change their driving style to attract lower premiums."

The AA is expected to announce a new technology-based insurance product later this year.

"It's vital that the industry, road-safety organisations, the education sector and the government focus on helping young people start their driving careers safely and responsibly, which in turn will help to make car insurance more affordable," adds Simon.