Gender rule offers opportunity
The European Union (EU) ruling prohibiting insurers from setting premiums along gender lines provides a one-off opportunity to raise rates with the introduction of the new rules on 21 December, according to Fitch Ratings. The company has said that it does not envisage any changes to insurers’ credit ratings in the near term from these changes.
The European Union (EU) ruling prohibiting insurers from setting premiums along gender lines provides a one-off opportunity to raise rates with the introduction of the new rules on 21 December, according to Fitch Ratings. The company has said that it does not envisage any changes to insurers’ credit ratings in the near term from these changes.
UK insurers should be able to cope with the new requirements, despite the risk that gender-neutral premiums could distort pricing and introduce cross-subsidies between the genders. Fitch believes that insurers have the necessary underwriting and pricing expertise to maintain profitability, although there is likely to be some disruption for insurers while they adapt their systems to the gender ruling. In order to cope with the effects of the gender ruling, insurers will need to make better use of other pricing factors to reflect the risk of each policyholder, and personal motor coverage, postcode, age and driving experience are now more likely to carry significant weight when it comes to setting premiums. Fitch has said that it expects personal motor price hikes to be uneven, with younger less-experienced female drivers likely to incur the greatest rises.
For life insurance, meanwhile, the pricing impact is likely to be less dramatic because joint-life products, the bulk of business volume, typically have both genders factored into the pricing already. Also, age and health are stronger indicators of mortality risk than gender, and hence are already more significant pricing factors. However, Fitch expects some changes for single-cover pension annuities where rates differ by around 10 per cent between the genders, with women paying more to reflect their longer life expectancy. The gender ban is likely to see this gap narrow as annuity rates fall for men and rise for women. For single-cover life protection, men may get a better deal when the ruling is in force.
Pricing shifts between the genders are unlikely to significantly affect overall business volumes and risk profiles for insurers. For many products, customers will largely have to accept the new rates, as there are limited alternative options. New premiums will likely include a loading to cover the unpredictable changes in the gender mix of the business and help offset potential increases in risks. Insurers may also look to pass implementation costs onto customers.
The pricing impact from the gender ruling could be blurred by the wide variability in premiums between competitors as they respond to market conditions and position themselves strategically, said Fitch in conclusion. Other regulatory changes, such as those affecting the distribution of retail products, are also likely to be significant influences on product pricing for insurers.