EU bans gender-based insurance rates

In most of the United States, men pay more for auto insurance than women do, and with good reason: Men cost more to insure – especially young men.

The same was true in much of Europe, until last week.

Male drivers didn’t get any better. But the European Court of Justice banned gender-based insurance rates, saying they were incompatible with Europe’s Fundamental Charter of Rights. That document prohibits “any discrimination based on any ground such as sex, race, colour, ethnic or social origin, genetic features, language, religion or belief, political or any other opinion, membership of a national minority, property, birth, disability, age or sexual orientation.”

In the past, insurers relied on a 2004 directive that recognized the strength of the evidence for gender-based rates. The average claim for an 18-year-old male in the U.K. totals  £4,400 ($7,160), vs.  £2,700 ($4,390) for an 18-year-old female.

The net effect: Women will be subsidizing men for auto insurance. One British insurer estimated that women under 25 years could pay 25% more per year – perhaps  £400 ($650).

The ruling affects other types of insurance, too. Women live longer, so they traditionally paid lower rates for life insurance. (The insurer could earn more investment income off the premium while waiting for the woman’s demise.) So women will see life insurance rates rise, perhaps by 20%.

Women will benefit, though, with annuities. Now, women receive lower payouts than men, as they live longer in retirement.

All this was analyzed by the Association of British Insurers (ABI) well before last week’s ruling. (A pdf is here.)

Overall, rates could end up higher than they are now. As the ABI notes, the ruling creates uncertainty, and the less certain the environment, the more insurers are likely to charge.

That will be tough to take in the U.K., where the average auto insurance rate has almost doubled in the past three years, to  £1,332 ($2,167), according to the Independent.

In the U.S. personal auto market, sex “is still taken into account as part of complex formulas,” and plays a big role with younger drivers in particular, a public policy specialist at the National Association of Mutual Insurance Companies told the Wall Street Journal. But it has become less important as insurers have begun turning to credit scores to help peg rates.

Of course, credit scores are not without controversy, an issue I.I.I. has explored frequently.

The ruling takes effect in December 2012.

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