Will the Ruling on Gender Based Pricing Change Insurer’s Practises on Income Protection?

The European Court of Justice in Luxembourg decided to ban gender-based pricing on the 1st March 2011. The court made it clear that companies all over Europe which also includes the UK should discontinue the gender based pricing approach. This ruling comes into force from December 2012. The product categories that the court has explicitly included in its ruling are motor i.e. car, medical insurance and pension schemes.

In the car segment, many women only brands such as Sheilas Wheels have accepted the reality and are aggressively pursuing customer acquisition strategies. They have not only started selling to men but also cutting prices to ensure that they have a more balanced gender split by December 2012. However, the views of insurers and underwriters continue to be split over this issue. Some of them feel that the European Court has gone a bit too far in terms of legislating and has not kept in mind the commercial realities.

Women in general are safer drivers and in general have lower medical claims and more diligent in terms of savings and it made pure business sense to offer lower prices to women. Other underwriters feel that the whole idea of insurance is to allow people to offload their risk at affordable prices. If insurers are selective about segments that interest then, by default they are penalising other people and excluding the benefits.

The debate does not stop just there. Increasingly, insurers are worried that other products like income protection insurance will also be targeted by the courts. Several leading insurers and banks including some of the main stream ones such as Barclays offer preferential pricing for women. There is increasing reluctance amongst the underwriters of income protection insurance to allow newer products with preferential pricing for women. Some underwriters argue that if the preferential pricing is removed for income protection, the product will become unaffordable to women and the overall volumes will reduce. These reductions in volumes will in-effect push-up the overall pricing for these ranges of products.

Over the next few months, it will be interesting to see the views of major players such as Aviva, RSA and some of the Lloyds underwriters who tend to focus on these products. It is certain that gender based pricing will impact Income Protection Insurance. It is more a case of when and not if, so all that can be said is – watch this space.