Gender Pricing - The race to 2012

 While this uncertainty remains, it is much more difficult to focus the mind on how individual companies can use the ruling to their advantage and either increase their market share (for insurers) or best advise their clients (for brokers).

Much of this delay seems to be caused by the desire to ensure that enacting the ruling does not cause age and disability to fall subject to a similar decision and, as such, UK legislation is not expected until the start of 2012 at the earliest.

This is frustrating as it is important that the industry has as much time as possible to plan and allow for what is actually going to happen.

But it is also key that there is as much legislative clarity as possible on what can or can’t be done as leaving the finer details to be resolved through court cases in the future can only serve to destabilise the market.

The second main reason for perceived lack of activity around the judgement is all the other regulatory changes being imposed on the insurance world at the moment, meaning it is very difficult for companies to focus on all aspects at once.

Solvency II and the Retail Distribution Review are huge competing drains on company resources.

But the change in life company’s taxation and the removal of I-E tax regime for new business, which is expected to take effect from January 2013, is most interesting in terms of interaction with the effect of moving to gender-neutral rates.

Without the taxation changes, for term life insurance the expectation would have been that following the move to gender neutrality new rates would on average move to be 5% to 10% lower than today and about 15% higher than present female rates.

This naturally would have given insurance companies a concern of mass lapsation on their recently acquired male lives and, in the absence of other changes, they might have had to give more thought about how to counteract this risk.

However, the taxation changes will push prices up and largely negate this issue, meaning that insurers have been able to breathe more easily.

So, there is still a lot of uncertainty. But there are things that can be done now in the name of providing best advice.

For example, if premiums are going to increase significantly, it may be beneficial to get cover in place prior to next December.

What will be the likely pricing impact for the life term and accelerated critical illness products following the move to gender equality and the removal of the I-E tax regime? This varies hugely by the individual pricing points, but in aggregate are shown below:

There is also the chance insurers may increase their rates further as they charge for the risk that they get more of the higher risk gender than they expect.