The European Court of Justice (ECJ) has recently ruled that from 21st December 2012 it will be illegal for insurance companies to discriminate on the grounds of gender. One of the UK’s leading price comparison websites, moneysupermarket.com, believes that this will push up female auto insurance premiums by up to 50% with male prices only dropping by 10%.
This could therefore result in many families in Europe losing money over the course of a year. However, with most insurance companies having cross Atlantic operations, the repercussions of the ECJ’s ruling are unlikely to be confined to Europe.
The moral move
The ban on gender discrimination has been welcomed by prominent members of the European insurance community such as Martin Lewis from moneysavingexpert.com who stated: “gender price differences there are based on behaviour. Why should one man pay more because others behaved badly?”
This once again raises the issue of discrimination, with Lewis adding that stereotyping people on the grounds of gender is actually no different from stereotyping on the grounds of race, as it doesn’t mean that everyone classed in a particular group will act in the same way. The head of car insurance at moneysupermarket.com, Steve Sweeney, has supported this viewpoint “Ultimately, I think people should be treated fairly based on their own individual risk profile.”
Apart from the viewpoint that this was the morally correct move, it has been claimed that this could ultimately save all auto insurance customers money. The Association of British Insurers (ABI) believes that the higher premiums which are quoted to young male drivers are ultimately responsible for the high number of fraudulent claims being made in the UK. This is believed to cost British insurers $3.2 billion per year, with this additional expense ultimately being passed onto consumers. It has been suggested that the drop in premiums will therefore see the number of fraudulent claims being made drop as motorists won’t struggling as much financially and will also feel less aggrieved.
Is it such a good thing after all?
The opinion is not shared by Simon Douglas who is the Director of Insurance at the AA. Douglas claims that the majority of young male drivers will not be paying enough to cover their costs following this ruling, with the extra costs they draw up through claims ultimately being recovered by an increase in the average insurance premiums paid by average motorists: “If insurers are not allowed to use such an important risk factor as gender, there is an increased risk that premiums won’t cover claims costs and they will need to increase prices in aggregate to compensate for the additional risk. This is bad news for motorists generally, although of course there will be winners and losers.”
David Powell of Lloyd’s Market Association is also of the opinion that car insurance premiums for the average driver will rise as a result of this ruling, claiming that young male drivers will be more inclined to buy high performance vehicles due to the initial discounts which they will be expecting. Powell claims that the likely increase in claims made as a result of this would then push up insurance premiums for all motorists as a result of insurers attempting to recover their additional expenses.
A less considered viewpoint was offered by British politician Phillip Hollobone who merely stated: “we all know that women drivers are better than men”.
Cross Atlantic impact
As has been noted by Business academic Peter Dicken, we live in an increasingly globalised world. This means that financial and legal markets are becoming intertwined and that American legislators will therefore be likely to introduce similar rules in the interests of trade harmonisation. It should also not be forgotten that many insurers that operate within America also have operations in Europe, which increases the chances of trade harmonisation efforts being made.
American consumers should therefore take a close look at what happens in Europe over the coming years as a result of this ruling so that they can be better prepared in the event of it hitting America. Whether it will ultimately be a good or bad thing remains to be seen, with this topic appearing to split even the most experienced of car insurance experts.
