The EU ruling prohibiting insurers from setting premiums along gender lines provides a one-off opportunity to raise rates with the introduction of the new rules on 21 December, Fitch Ratings says. We do not envisage any changes to insurers’ credit ratings in the near term from these changes.
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.
Insurers will need to make better use of other pricing factors to reflect the risk of each policyholder. In personal motor, postcode, age and driving experience are likely to carry more significant weight setting premiums. We expect personal motor price hikes to be uneven, with younger less-experienced female drivers likely to incur the greatest rises.
For life insurance, the pricing impact is likely to be less dramatic because joint-life products, the bulk of business volume, typically have both genders factored into the pricing already. Also, age and health are stronger indicators of mortality risk than gender, and hence are already more significant pricing factors. However, we expect some changes for single-cover pension annuities where rates differ by around 10% between the genders, with women paying more 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.
Pricing shifts between the genders are unlikely to significantly affect overall business volumes and risks profile for insurers. For many products, customers will largely have to accept the new rates, as there are limited alternative options. 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. Insurers may also look to pass implementation costs onto customers.
The pricing impact from the gender ruling could be blurred by the wide variability in premiums between competitors as they respond to market conditions and position themselves strategically. Other regulatory changes, such as those affecting the distribution of retail products, are also likely to be significant influences on product pricing for insurers.
