ECJ ruling explained – how your insurance premiums and retirement will be affected

Well, it happened – today the European Court of Justice (ECJ) ruled that insurers will no longer be able to ‘discriminate’ on the basis of sex. By this I mean that insurance companies will have to treat men and women equally when setting insurance premiums or annuity rates. Currently insurance companies don't have to as described in my previous article The EU ruling that could push up insurance premiums and cut annuity rates.

When will the change come into affect?

The good news is that the change will not come into effect until the 21^st December 2012 to give the industry time to prepare for the change. This task will be a huge undertaking given the sheer scale of the necessary amendments to existing procedures, paperwork and computer systems. On a positive note the ECJ ruling will not be retrospective in it's implementation.

What will be the impact for consumers?

• Life Insurance premiums – if insurers have to ignore the fact that women outlive women life insurance premiums will have to alter from their current position. No one exactly knows how the insurance companies will implement any changes but, according to the BBC, the Association of British Insurers estimates that men could see a 10% fall in premiums, while women's rates could rise by as much as 20%.
• Car insurance premiums – the headlines will no doubt shout about the fact that 'boy racers' will benefit form the ruling at the expense of young women. The AA predict the later group's annual bill will go up by £400.
• Pension Income – well the key area affected by the ruling will likely be annuity rates. Typically men’s annuity rates will fall as insurers will pretend that men live just as long as women. Currently men get better annuity rates than women of the same age to reflect the fact that they will on average die younger, which means more money in their pocket each month. If rates fall for men then their retirement income would be lower than under current rules. Meanwhile, women’s equivalent rates may improve slightly to reflect the removal of this gender weighting.

Should I be doing anything?

The insurance industry is reeling from a haymaker from the ECJ so trying to second guess on how it will react until after at least the '10 count' by the referee is not a good idea. The changes will not come into effect for the best part of two years. So your best bet is to keep an eye on the industry reaction in the coming months which of course I will decipher for you.

This ruling is a turning point for the insurance industry and could lead to new innovative products or alternatively it could push up costs, to pay for the necessary changes, leading to more profit making non-personalised insurance based products (not unlike how Payment Protection Insurance makes money for insurers now). But, we will see.

Image: Salvatore Vuono / FreeDigitalPhotos.net