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European gender ruling: what it means to you
(Update) Politicians and insurance experts have attacked a ruling from the European Court of Justice which prevents insurers treating men and women differently when assessing risk. The decision has huge implications for pensions, life cover and car insurance.
Simon Douglas, director of AA Insurance, said the ruling came at a bad time for car insurers struggling with sharp rises in claims costs, leading to record premium increases over the past year.
He stressed that it was important ‘not to confuse equality with fairness.’ Douglas added: ‘The calculation of car insurance premiums based on risk is by definition fair, but is incompatible with gender equality.'
In their decision the judges followed advice from the court's advocate-general that ‘higher-ranking’ equality provisions set out in the Charter of Fundamental Rights of the Lisbon Treaty must now apply. Discrimination in setting insurance rates until now had been permitted under EU rules, if gender was a ‘determining risk factor’ backed up by actuarial and statistical data.
The leader of Britain's Conservative MEPs, Martin Callanan, blamed the last Labour government for the outcome. 'By signing us up to the Charter of Fundamental Rights in the Lisbon Treaty they have opened the floodgates to nonsense court rulings like this one.'
Fellow Tory MEP Sajjad Karim said: 'This ruling is utter madness. It is a setback for common sense.'
Is the current system unfair?
The judges issued the ruling in response to a challenge by a Belgian consumer group, Test-Achats. It had argued that the current exemption for insurers contradicted the wider European principle of gender equality.
David Trenner of Intelligent Pensions said the verdict could lead to a more sophisticated underwriting of annuities. He pointed out that differentiation based on gender alone had always been a ‘very crude’ way of estimating life expectation.
‘My late grandmother and Queen Elizabeth the Queen Mother were both born in 1900. Both were females, but whereas the Queen Mother died in 2002, my grandmother died in 1972 a full 30 years earlier, he said. ‘This example highlights very strongly that gender alone does not determine life expectation!’
Martin Lewis, the creator of MoneySavingExpert.com, said there was ‘some logic’ to the ban in regard to car insurance. ‘Gender price differences there are based on behaviour. Why should one man pay more because others behaved badly? Would we allow the same to happen based on racial differences?’
However, Lewis went on to say that in the main, the ruling was ‘ridiculous.’
Another blow to pensions
Pensions expert Dr Ros Altmann warned that annuities would become more expensive as four-fifths of annuities are bought by men. ‘Currently, men buy around eight out of every ten annuities sold in the UK and all of them risk receiving much lower pensions as a result of this decision,’ she said. ‘This means that future UK pensioners will be even poorer than they otherwise would be. ‘
Laith Khalaf, pensions analyst at Hargreaves Lansdown, said the firm expected a reduction of between 5-10% in male annuity rates. ‘It remains to be seen how much of an increase women get when they buy their pension,’ he noted.
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