We are all braced for what effect the fairly recent EU’s Gender Directive on Motor Insurance will have on the motor insurance market.
For those of you who may not have seen or taken an interest in the news item a couple of months back – you need to start paying attention, particularly if you insure a vehicle.
The gist of it is that insurers will no longer be able to differentiate motor insurance rates on a gender basis, or if you prefer – to discriminate.
This should be great news if you are a young man and a disaster if you are a young lady.
If you are a young lady, you are going to face a significant hike in your premiums when the legislation comes into effect in December 2012.If you’re a young male driver, you could be able to bag yourself a nice Tag Heuer watch with your savings.
The UK insurance industry does not seem to have seen this one coming, and has neither prepared itself for it nor is it able to challenge it – as it is a directive.
What we have here is a classic example of what happens when you apply the ‘principles of fairness’ to real life, and insurance in particular.
Insurance rates are based on the probabilities of an event occurring and the likely cost of restitution if it does. Yes, insurers are very similar to bookies, if you like! To assess risks they use statistics (what has happened in the past) like a bookie takes account of a horse’s previous outings.
Insurance premiums are, therefore, based on the statistics that they collect and their direct experience in a market.
They have no interest in the chemical structure or the gender of their customers and it is wrong that they should have such measures – which to even the most un-opinionated would register as counterintuitive – foisted upon them by a European edict.
The reason that the insurance industry charges so much to insure young male drivers is because they ‘statistically’ have more claims – in fact, if you take the time to speak to a few underwriters, they would charge young male drivers even more, if the market could stand it without driving them to be an ‘uninsured underclass’ – as it is a completely unprofitable line of business.
Conversely, females are a more equitable risk for insurers as the actuaries can prove that they have less accidents and the accidents they do have, cost the insurers less.
No. Underwriting should be based upon facts not some EU court’s definition of ‘fairness’. It should be left to the market to work out. Imagine, having statistics that inform you how to run a responsible and profitable business and then being told that you cannot use them. Instead, you have to cross subsidise the risks across different types of customers – because a European Court deems that to be fair?
I have a horrible feeling that it won’t end there. I can see discounts for pensioners being the next victim of the ‘fairness’ offensive, whilst the life insurance industry is no doubt braced for being told that it cannot charge sick or old people more than they charge healthy under 25’s.
I did think at first that this one might be a news item on a ‘slow’ news day but, I regret that this one is coming your way and soon, I as a male will gratefully accept my lower premium, but it will be a hollow victory that our European Friends have won for me.