Imminent new European rules that will bring an end to insurance products being priced along gender lines will cause some disruption to British insurers but should allow them to maintain profitability, Fitch said today.
The change, due to take effect on Friday, is a result of a March 2010 European Court of Justice judgement which said the use of gender as a risk factor by insurers should not lead to individual differences in the premiums and benefits for men and women.
In a note, Fitch said 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'.
'We believe 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,' it explained.
To address the changes, insurers will need to make better use of other pricing factors to reflect the risk of each policyholder, Fitch said. For motor insurance, postcode, age and driving experience are expected to carry weight in setting premiums. The agency expects 'uneven' increases in motor price hikes, with younger, less-experienced female drivers likely to be worst hit.
Fitch expects a less dramatic impact on the life insurance market because the bulk of their business volume - joint-life products - generally have gender factored into their pricing already, while age and health are stronger indicators of mortality risk than gender and therefore carry more weight in pricing.
It does, however, expect changes to single-cover annuities where women pay around 10% more than men 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,' Fitch explained.
Overall, Fitch expects the pricing shifts between genders to be unlikely to 'significantly' effect insurers' overall business volume and risk profile. In many cases, a lack of alternatives will mean customers just have to accept the new rates, while insurers may also look to pass implementation costs onto consumers.
The agency added: '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.'
