Lost in Translation: Insurance in chaos?

Yesterday's ruling by the European Court of Justice is very much in-line with the principles of fairness outlined in EU Directive 2004/113/EC, but ironically fails to be "fair". Regrettably this is another example of poor thinking and unintended consequences. Not by the judges, who have been left little room for manoever, but by the politicians that failed to see the consequences of their noble aspirations for equality way back in 2004.

From 1st January 2013 (conveniently the same date that the new RDR regime begins) the rule for unisex premiums and benefits will apply - unless this ruling is challenged.



Lloyds Building - UK Insurance Market

On the face of it, it would seem fair that everyone is treated equally regardless of their gender. However, when risk is being considered (risk of death, injury, illness or accident) insurance companies have applied the logic of experience and actuarial number crunching. Lloyds of London is the worlds leading insurance market and will need to think through the implications of the ruling.

It will surprise nobody that women tend to outlive men. It will also not be a shock that young male drivers are more likely to have an accident and a more expensive one at that. I know that this is a long debated and joked issue - "why do women outlive men?" perhaps there is a correlation between life expectancy for males as a direct result of the stress caused from poor driving at speed? I have a rule at home that my daughters are not driven by anyone that has not held a full drivers license for a minimum of 12 months, I digress. As a result of the "evidence" (statistics) the price of risk can be calculated. Young men pay more for car insurance, older ones pay more for life assurance. Men tend to get a higher annuity from their pension pot because they are unlikely to live as long...most will invariably leave all or a part of that income to their spouse, which of course will be detrimental to many women that don't have very large pensions of their own.

As a result of the ruling, the insurance world is thinking through the ramifications and to put it bluntly is in "chaos". My own view is that all young drivers will now pay a lot more for car insurance. Men will get worse annuities, as a consequence so will their spouse. Men and women will probably both end up paying more for insurance of any description - after all there is no excuse quite like a legal one for taking the opportunity to whack up the premiums. Unless of course, someone stands up and says this is daft without sounding like a rant from a tabloid newspaper.

So we all lose. Equally - or not so equally, but we all lose.