A closer look at the new motor insurance gender equality rules

Following a ruling by the European Court of Justice, UK insurers will not be allowed to use gender as a factor when setting insurance premiums.

That should mean in theory that a man and a woman whose application details are otherwise identical should pay the same premium. Insurers have been given until 21 December 2012 to change their procedures so they can follow these rules.

Who made the rules?

The change came from a case in the European Court of Justice. It ruled on a long-standing dispute about how existing European law, which bars price discrimination on gender grounds, should affect insurance. This measure is already part of British law, but national governments (including Britain) will no longer be allowed to have an exception for insurance after 2012. The odd date is because this is exactly five years after countries were required to change domestic laws on price discrimination.

Why is this so important for motor insurance?

Motor insurance is the area of insurance where there is the biggest difference between genders. This is down to statistical evidence that women are less likely to make expensive claims than men. What many people don't realise is that the difference isn't simply how likely a person is to make a claim, but also how costly that claim will be: to grossly oversimplify, it's more likely that a woman will have a minor prang while a man is more likely to have a crash with a complete write-off.

How will this affect premiums?

This is difficult to say. In theory insurers will have to find new profitable premium levels for both genders. This will almost certainly mean that, with the same insurer at least, women will on average see price rises and men see price falls. Exactly how prices change may depend on the competition in the market and how consumers respond: for example, if prices for women's car insurance leap up, they may switch to third party, fire and theft policies rather than comprehensive policies.

Will everyone be affected equally?

It's unlikely. The current price differential is far greater among younger drivers than older drivers, meaning it's young drivers who should see the biggest difference.

What other changes could result?

One likelihood is that insurers will put more emphasis on other factors such as the type of car driven or the driver's occupation to take more account of individual risk. It's also possible some insurers will simply stop offering policies to younger drivers, which could reduce competition.

Does this affect any other form of insurance?

Yes, it should mean life assurance costs change. Because women live longer on average, they currently tend to pay lower premiums -- the logic being that they will be paying premiums for longer so the total amount received by insurers theoretically works out the same. The ruling should also mean reduced premiums for men and increased premiums for women.

So it's all good news for men then?

Not entirely. The rules also cover annuities, which are the financial products people buy with their retirement savings to produce future pensions. At the moment if a man and a woman have the same amount to spend on an annuity, the man will receive a higher pension as he is expected to receive it for a shorter time before dying; after the changes they'll have to get the same amount. However, the effects of this change may not be all that noticeable as they could be outweighed by other factors affecting all annuities more drastically in the coming years.