FSA attacks proposal for gender equality law

FSA attacks proposal for gender equality law

Young women drivers could see their car insurance premiums rise by up to 30% if European Union "gender equality" proposals become law, Britain's chief financial watchdog has warned.

The Financial Services Authority yesterday waded into the row over the "threat" posed by a draft EU directive, which would prohibit the use of gender as a factor in calculating insurance premiums.

This would particularly affect motor cover, where women tend to pay less because they are deemed to be safer drivers, and life insurance, where they benefit from the fact that they tend to live longer. For the same reason, women fare less well than men when it comes to swapping an accumulated pension pot for an annuity - the product that provides an income for life.

Because women have a longer life expectancy, their annuities are typically lower. If gender were not taken into account, both sexes would receive the same annuity rates, giving women a slightly better deal and men a worse one.

Insurance companies have argued that the proposals would put millions of people in Britain at a disadvantage, and the FSA picked up the baton yesterday, with chairman Callum McCarthy telling a conference that the directive "overrides reality" and is likely to hinder the development of an efficient insurance market.

The European Union's social affairs commissioner, Anna Diamantopoulou, has been pursuing the issue, arguing that insurers are discriminating against women by using.....continued below

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sex as a factor in insurance premium calculations.

The directive is being discussed by member state governments.

Mr McCarthy said that while the aims were laudable the effect of the proposals would be to force insurers to depart from a realistic assessment of risk, "a principle which runs counter to good sense".

He said the FSA's own estimates suggested that young women drivers were likely to see their premiums rise by between 10% and 30% if the draft directive became law.

The insurer Direct Line has calculated that female motorists aged between 17 and 24, many of whom are already paying more than £1,000 a year for cover, could see their premiums rise by £500 a year.

Meanwhile, the introduction of "gender neutral" pricing could see the premium payable by a 40-year-old woman for life insurance cover rise by 16%, against an 8% fall in a 40-year-old man's premium.

The directive would increase women's buying power when it came to annuities.

Ignoring the reality of different life expectancies for men and women could increase the annual income a 60-year-old woman would be able to purchase by 2% and reduce the revenue a man of the same age could purchase by 3%, the FSA said.

In addition to these arbitrary increases or decreases, the proposed directive would increase the overall cost of buying insurance cover because firms would not know in advance the proportion of men and women who might in the future buy their gender-neutral products.

They are therefore likely to include margins in their pricing of products to cover the risk that their assumptions are wrong.

"We would expect insurance prices to have to increase by some percentage points to cover this, and for an increase in capital for the insurance industry. This could be considerable, and come to and even exceed £1bn," Mr McCarthy said at the conference in London.