So, what are the knowns and unknowns of the forthcoming Gender and I minus E changes? Mark Jones takes us through a few wrinkles
One particularly interesting clause in the government response document focuses on attempts by insurers to put in place ‘artificial structures’ before G-Day to circumvent the impact of the directive after this date.
It states that any such moves would clearly be contrary to the spirit of the judgment and unlikely to be looked upon favourably by the European Commission or the courts.
No specific remedial action then, but a clear shot across the bows to those contemplating offering ‘creative’ solutions, deals or promises. While there will be some price winners from Gender, these are likely to be largely offset by I minus E.
The net result? For most, but not everyone, the cost of protection will be going up in 2013. In fact, the only group of people who are set to be clear winners from the changes will be women who want to buy income protection
Gender has and will enjoy plenty of column inches, but only in the trade press. Yet it is imperative to flag the importance of I minus E too. If you have missed it, here is a very quick ‘grab ’n’ go’ explanation.
The ‘I-E’ (investment income and chargeable gains minus expenses) taxation regime currently allows insurance companies to offset the costs of their life insurance business against their investment income (for example with profits business).
This is being removed at the end of 2012. It will result in some insurance companies paying more tax, thereby increasing costs and inevitably leading to higher prices for their customers.
In March 2012, the Actuarial Profession indicated the taxation change could lead to an increase in new life and critical illness premiums (as most critical illness is combined with life cover) of around 10%. This I-E tax regime does not affect income protection.
However, not all providers are impacted to the same level, as they will have varying amounts of investment income available to them. An argument in favour of the change is it will remove a barrier to entry, as currently a new entrant into the market without an investment back book is at a competitive disadvantage.
So how much will prices change? Whatever average figures LV= or others use, we can guarantee that they will not apply to your client. There are so many factors affecting premiums that it is impossible to give a single definitive figure that will apply to everyone.
The extent of change will vary by provider, will differ by product class and be determined by the individual circumstances of the client. Added to this, we expect to witness a fair amount of re-pricing activity in early 2013 as providers attempt to get to grips with the new gender neutral world. The table (above, right) gives a rough guide to how we can expect premiums to change across the market in 2013, adding together the effects of Gender and I-E.
