EU ruling could throw insurance pricing into chaos

A possible EU rule change means millions of consumers could pay more for some policies but millions of others could see costs plummet.

This is because European regulators are expected to ban the use of gender when insurers determine the price of cover (see the Car Insurance, and Life Insurance guides).

Insurers currently set different rates for men and women on many different policies.

As insurance stretches beyond simply providing compensation if something happens to your car, home or pet; to being an integral part of the way retirees turn their pension savings into a regular income, the change could dramatically affect what you're paid in old age.

Men, for instance, could typically be faced with a drop in income of hundreds of pounds a year (see the Free Annuity Booklet).

What is happening?

The European Court will rule on 1 March whether insurers can still use gender as a means of determining what men and women pay.

Some experts believe it will enforce an immediate ban.

Is the outcome certain?

No. While the smart money is on the European Court banning the use of gender, not every favourite wins the race.

If a ban is imposed the next question is when will this happen. Again, while many experts believe it could be enforced immediately, that is not certain.

Nevertheless, Association of British Insurers acting director general Maggie Craig thinks insurers should prepare for a possible overhaul.

She says: "Our firm advice is member companies [insurers] should make the necessary preparations for a judgment that states differences in premiums and benefits in insurance contracts based on gender are illegal."

Why does gender matter?

Insurers use a multitude of factors to determine the prices they charge including age, gender and where you live.

For each variable they determine the likelihood of someone fitting that profile making a claim. The more likely someone is to claim, the more expensive cover will be.

So anyone who lives in a high-crime area is deemed more likely to claim on their car insurance for a stolen or damaged car.

Similarly, as men, statistically, have more accidents they tend to pay more for their car insurance.

Which policies could be affected?

Gender tends to influence the prices paid under the following types of insurance.

• Car insurance. Younger men tend to pay more than younger women as they are deemed more likely to have an accident. Premiums tend to even out when people reach their 40s and 50s.

• Life insurance. Men tend to pay more than women because they often die earlier so there is more chance insurers will pay out early.

• Health insurance. Women tend to pay more than men because they are more likely to visit their doctor when feeling ill and are more likely to suffer from certain chronic diseases.

• Annuities: These are policies where you trade in pension savings for a regular retirement income. Men tend to get more income because they often die earlier so insurers don't have to pay out for as long.

How much more/less could we pay?

As we are still one step from a ban, it is too early to say exactly how prices will be affected though where one gender pays or receives more, they are likely to pay or receive less in future, and vice versa.

Some experts believe on annuities, while men are likely to receive a significantly lower income, women's income is unlikely to rise a great deal so any gain could be negligible.

Martin Lewis, MoneySavingExpert.com creator, says: "A ban would be an idiotic ruling, that takes gender protection too far.  

"This is about risk, not bias. It's based on biological fact, not prejudice. Women live longer than men – plain and simple.  

"The likelihood is these potential changes will mean the gender that currently pays less will pay more, but not necessarily the other way round."

What should you do?

If it was certain your price will rise then you should buy now. If it was certain your price will fall then you should delay, though beware being uninsured, especially if you drive, as this is illegal.

However, we don't know exactly what will happen, so you will need to make decisions based on the facts available now.

With more complicated products, especially annuities, make sure you seek advice, unless financially savvy.

An annuity, for instance, is a one-off purchase you cannot change that affects your income for the rest of your life so do all the necessary research so you don't make the wrong choice. And don't automatically take your pension provider's deal as it probably won't be the best.

Further reading/Key links

Pension help: State Pension Boosting, Free Annuity GuideCut costs: Car Insurance, Home Insurance, Life Insurance