The UK insurance market is preparing for a radical reform, after the European court of justice ruled that gender pricing will be banned form December 21st 2012. The ruling follows an opinion last year from the Advocate General, that using gender when pricing insurance is discriminatory.
So far, a lot of the media coverage has centred around car insurance, and the impact that the ruling would have on women only companies such as, Shelia’s Wheels. Unfortunately the industry will no longer be able to price products in the way they have done in the past. This will mean almost certainly that young female drivers will have to pay more for their premiums to subsidise young male drivers, who are statistically a higher risk.
The new rules could also lead to considerable changes relating to the mortgage market. For example, many people are taking out mortgages/re-mortgages in to retirement. The reasons are often for home improvements or to help a family member to purchase their first property. Unfortunately, due to the changes a male’s £100,000 pension pot is estimated to be reduced by 8% per year, significantly reducing his capacity to borrow or his appetite to do so. The reduction is due to the allowance that men have had for their shorter lifespans, resulting in larger pensions being removed in 2012. Often I find decisions whether to borrow or lend in retirement are often finely balanced, and a reduction in the male income could adversely impact on the housing market in general. However, it could increase the demand for equity release products that don’t require mortgage repayments or income levels. Also, it is possible that the buy-to-let market might increase in popularity as people become increasingly disillusioned with the chopping and changing with regard to traditional pension provision. Bricks and mortar may feel more secure for many.
Life cover will also likely have to change, with women losing out as they traditionally pay less for their cover, due to the fact they live longer. Although they pay more for income protection, in part for the same reason they have increased longevity. A tip would be for women considering life cover to act sooner rather than later to gain cheaper premiums. Men considering income protection products should also act swiftly as they could potentially see premiums rise in 2012 to compensate for women’s higher claim rate in this area.
Overall, these changes are likely to add to the cost of insurance as companies overhaul their systems to accommodate the changes and then pass these costs on to the consumer. Additionally, uncertainties surrounding areas such as gender loading as a result of say, a family history of breast cancer being allowed to continue, will possibly add further costs affecting overall mortgage affordability, as a higher proportion of the total mortgage costs are spent on protection.
If you are unsure of the options you have, it is worth contacting an Independent Financial Adviser to provide you with impartial advice on what is right for you. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or visit www.kieronbassett.com.
Kieron Bassett CertPFS
7th March 2011
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