HMT: Gender neutrality to cut insurance sales

clock • 2 min read

Introducing gender-neutral rates will result in premium hikes for life insurance and critical illness (CI), HM Treasury has warned.

HMT also expects a reduction in insurance sales and cause greater reliance on state support and more intrusive underwriting processes including full health assessments and longer times to purchase products.

It believes three key effects will result from the European Court of Justice's (ECJ) decision to outlaw gender based pricing from 21 December 2012.

These are cross-subsidisation between genders, adverse selection increasing the cost of insurance generally and incentivising riskier behaviour and, with regards to motor insurance, worsening road safety.

HMT issued the warning as part of its consultation on implementing the ECJ's ruling and estimated that life insurance premiums will rise by 10% to 15% per year and CI policies by 12%.

‘Overall, we expect insurers will take a cautious approach which assumes a high mix of the riskier gender in a particular pool, therefore, we do not expect any gains through lower premiums to match the increases,' it said.

'A change to gender neutral pricing and premiums is also likely to have reputational impacts on the industry and there is also likely to be a reduction in the purchasing of private insurance policies.'

Although cross-subsidisation between genders has been widely predicted, HMT said it will also introduce adverse selection, which will operate to increase the cost of insurance generally and incentivise riskier behaviour.

‘If gender neutral pricing is introduced into life assurance, men (who have on average a lower life expectancy) will find life insurance to be good value and will be incentivised to buy it or buy more,' it continued.

‘On the other hand, women (who have on average a higher life expectancy) will find life insurance poor value and will be disincentivised from purchasing such insurance.

‘As fewer low risk people (i.e. women) take out life assurance, then the insurer's portfolio becomes increasingly risky, and the cost of insurance has to rise to compensate,' it added.

In the annuities market it is expecting few benefits to result, with male annuities potentially falling by 13% per year.

And Treasury is particularly alarmed by the possible knock-on effects to road safety.

It said studies have found that gender-neutral pricing as premiums for generally higher risk male drivers fall, they may purchase higher-powered cars or increase the riskiness of their driving.

It concluded by saying that the UK will still be privy to one of the most competitive insurance markets in the world and the market is, likely to eventually stabilise on average higher than before.

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