The European Court of Justice's ruling on gender-neutral insurance premiums is not expected to have a serious impact on UK life insurers because they have the necessary expertise to maintain profitability, Fitch Ratings said today.
From December 21, insurers will no longer be allowed to charge different premium rates according to gender. Insurers currently use gender as one of their main pricing factors because of the proven link between gender and mortality; with annuity rates differing by around 10% between the genders as women pay more to reflect their longer life expectancy.
However, as a result of the ruling, Fitch expects annuity rates to fall for men and rise for women, while in contrast men get a better deal on life protection at the expense of women.
Insurers are therefore expect to place more weight on other factors such as age and health when pricing their business, but Fitch said the impact of this would be limited, because age and health are already more significant pricing factors than gender because they are stronger indicators of mortality.
At the same time, premium and annuity rates for joint-life business are unlikely to change significantly because they typically cover one life of each gender. Most annuity business and a significant proportion of protection business is joint-life, Fitch said.
The ratings agency does not expect pricing shifts between the genders to significantly affect overall business volumes in the protection and annuity markets with most customers having no choice but to accept any changes.
David Prowse, senior director in Fitch's insurance team, said: 'Most protection customers have a clear need for life cover, often in connection with a mortgage, and will have little option but to accept the post-gender-ruling premium rates available.
'The annuity market is dominated by savers converting their pension pots into a retirement income. Typically, they have little alternative, given the restrictions on how pensions savings can be accessed, so they too will largely have to accept the new rates.'
Fitch did, however, warn that shifts in gender pricing could lead to unpredictable changes in the gender mix of new business coming onto insurers' books, as a result exposing them to a higher risk profile than expected.
Clara Hughes, senior director in the rating's agency's insurance team, added: 'Insurers could be expected to add a loading into their premiums to reflect this uncertainty and for the cost of holding additional capital against it.'
