Gender ruling will lead to further challenges, say experts

Today’s European Court of Justice ruling that gender based pricing in insurance is illegal will lead to further challenges with regard to age discrimination, KPMG has warned.

Mark Winlow, head of general insurance at KPMG, said: “The most immediate effect of this ruling will be felt by women who will see their motor insurance premiums increase by up to 50%.

"However, of greater concern to the industry is the likelihood there will be further European challenges, particularly around age. This is a more significant factor than gender as age is used much more widely to differentiate risks. For example, a young male driver can easily be charged 1000% – 2000% more than the same man when he reaches 50. In anticipation of further restrictions, insurers are already looking to alternative methods to understand their customers and risk better."

He added: “A number of insurers are already investigating alternatives to assess the lower risks, currently determined by gender. Those who already capture diverse information as part of a quotation or have alternative customer data from loyalty cards or memberships are likely to quickly maximise the benefit, leaving others exposed to the higher risks or charging higher prices."

KPMG also predicts that this ruling will encourage many insurers to fast track their use of telematics, driver tracking technology.

"Winlow continued: “Those in the industry not researching improvements to their rating, underwriting or product developments for the future are likely to be soon exposed by the ever competitive UK market. Telematics is an area being investigated by a number of motor players."

Pricing models

Meanwhile, Simon Sheaf, Grant Thornton’s general insurance actuarial practice leader said UK insurers will now be forced to change their pricing processes to ignore gender and consider how they handle quotations made in the run up to December 2012.

"There is also the potential for anti-selection for any insurers acting ahead of December 2012 and for all insurers over the change-over timing that will need to be addressed," he said.

"This issue applies to a number of general insurance products, such as motor and personal accident, as well as to life and health products meaning that both the life and general insurance industries have major exercises to undertake.”

The opinion required what is termed as a ‘preliminary ruling’ and is still open to challenge. However, Sheaf added “The challenge to insurers will now be to find any underlying risk identifiers that sit behind gender differences and to move towards using these as rating factors by December 2012.

"Ironically, the new Solvency II capital regime creates higher capital requirements where risk factors have been ignored.”