Insurers should welcome the announcement earlier this week by Treasury minister Mark Hoban about the UK government plans for implementing the recent European Court of Justice ruling outlawing the use of gender as a rating factor when setting insurance premiums. It does, as Mr Hoban claims, deliver certainty in the run-up to the December 2012 cut-off.
It seems likely that one effect of the UK approach - which rules out any retrospective re-rating - will be a big 'buy now while stocks are legal' push in the latter half of next year. While I can imagine this will have some appeal to motor insurers specialising in the female market, I think it will be underwriters of long term insurance classes such as life assurance that will be most attracted by this approach. Any advantage from buying a gender-rated motor or travel policy is short-term as the contracts only last for a year but with life insurance the term can be 25 years or more, effectively locking in a pricing advantage for life. Term assurance for women could be a big seller.
Looking further ahead, Mr Hoban was right to focus the industry's attention on the need to head off a similar threat to age-related underwriting. I don't think this is as serious as some scaremongers are suggesting because there doesn't appear to be the sort of abuse of it as there was has been with gender. With gender too many insurers lazily used it as a proxy for other factors. I just don't see that to the same extent with age, although travel insurers (why is it always them?) do seem to use it as a proxy for health: this has to stop.
Mr Hoban appealed to the industry to lobby hard to get its right to use age as a rating factor enshrined in European Union and national legislation. This is a sensible call but the industry needs to firstly ensure that its own house in in order. This is a Europe-wide challenge. UK travel insurers are probably not the only group of insurers across Europe who need to clean up their act. Once it has done that it should build a consensus with the most influential organisations representing older people so that any lobbying is not easily dismissed as special pleading on the part of a narrow commercial sector.
With an ageing population it is vital that insurers have the flexibility to use age as a rating factor as products will need to develop and change to meet the needs of older people. I can think of few greater disincentives to developing products that are suitable for people at different stages of their life than a crude ban on age-related underwriting.
Opinion piece by David Horsfeld
Article from Insurance Post