Followers of this blog will recall my brief post earlier this week regarding the ECJ’s problamatical decision regarding gender discrimination and underwriting. For those wishing to see the post (and the press announcement from the ECJ) please click here https://www.jelfgroup.com/blog/2011/03/another-fine-mess/

Briefly, the judgement suggests that everyone should be rated on unisex rates for insurance purposes. Sounds fair on the face of it, but the polar opposite of how insurance actually works. For the uninitiated, insurance works on the fairly simplistic principal that the insurer assess a risk to be covered (which could include many factors, of which gender is but one), and then charges a premium appropriate to that risk. The ECJ are seeking to remove the gender element from the equation.

Most of the headlines of the last few days (and this has created a lot of coverage in the national media) made a lot of the impact on motor insurance. Why? Well in media-land it’s usually best to focus on a story that is tangible to most, and motor insurance is one such example. Most of the stories have centred on how younger female drivers, who are statistically much less likely to have an accident than their hot-hatch driving male counterparts, are now likely to be paying higher premiums as a result of the unisex rates. This is however only one element of the overall picture, as gender differences impacts on many other forms of insurance as well. Indeed, the equalisation of gender rates may carry benefits to females in other areas, so it may be a case of swings and roundabouts.

So, as ever, we are only hearing one side of the argument. However, the purpose of this blog is to keep employers informed on how this will impact on employee benefit provision, so lets look in more detail at this.

We have sought views from several of our experts within the group as to what this means to employee benefits. Here is their considered view as of today, although I would like to point our that there will be much more on this over the coming months so these may not be the final answers…

Group Health Insurance Policies

Matthew Judge, who will shortly become a contributor to this blog, provided a link to the Association of Medical Insurance Intermediaries (AMII) website. Their website commented:

ECJ Gender Ruling – Limited impact on Private Medical Insurance

The European Court of Justice (ECJ) has today announced that the use of gender in underwriting will be outlawed from 21 December 2012. This decision is to apply to all forms of insurance, including protection and private medical insurance.

However, the impact on private medical insurance (PMI) is likely to be less significant than other sectors of the insurance industry.

“The vast majority of PMI insurers don’t have different premiums for gender and for those that do, the difference in premium is not significant. However, there are a small number of insurers who have used gender pricing in the past and so have older policies on the books that would need to be adjusted from 21 December 2012. For those consumers, they should consider seeking specialist advice from an independent health insurance specialist on alternative options within the market, especially if continuous cover is required for previous medical conditions,” says Lindsey Joseph from the Association of Medical Insurance Intermediaries.

So, not too bad news for this sector, or indeed employers, here.

Group Risk Policies (Group Life, Income Protection and Critical Illness)

Our Director of Group Risk, Chris Ford, has spoken to several insurers on this topic, and the shared consensus of opinion supports minimal impact for Group Risk policies. Chris said: ‘Group Risk is an Employer contract, which by it’s nature doesn’t discriminate an employee, as a ‘unit rate’ is applied to all, with various additional factors to age and gender contribute to pricing.’

Again, not particularly bad news. Chris did however go on to mention that ‘single premium’ schemes which do not benefit from a unit rate may well be impacted as such schemes mirror individual costings. This usually only applies to smaller groupings anyway, and it is currently unclear how unisex rates will impact on this.

Another area which falls within Chris’ remit would be voluntary benefits where employees elect for additional cover outside of fixed scheme structures. This could well be a factor going forward, as it seems likely that Unisex rates would have to be used here. However, can’t really see any major immediate problems for employers here other than a possible communication point, with possibly some minor adjustment of flex scheme options in the future.

Group Pensions

Matthew Robertson of our Annuity team had been doing some work on this issue even before the judgement was announced.

The example he used (and please note, this is only an example and not intended in any way to be an example of annuity rates) are as follows:

• A male aged 65, with an annuity purchase price of £50,000 could look forward to an income of £3,397 per year*
• A female of the same age and with the same fund would expect £3,223 per year*
• Either based on unisex rates would expect £3,292 per year*

(*Figures were provided by The Open Market Annuity Service (TOMAS) on 8th February 2011)

So whilst not quite meeting in the middle, better for females (hence my comments about swings and roundabouts above) and worse for males.

Such a ruling could of course change the products available withing the annuity market. It is also likely to have an impact on pension outcomes and projections within Defined Contribution (DC) schemes. Employees funding for a targeted pension income may need to seek guidance on how much they should now be contributing.

Matthew, and indeed I, have both noted that there is much pressure from providers to overturn this issue, so I suspect this subject will return to haunt the blog in the not too distant future.

So, a little info to be going on with, and we will continue to update you and/or add additional notes as required.

Best regards

Steve