Or is it? Women may pay less for car insurance but it is the fairer sex that ends up out of pocket when it comes to protecting against long-term illness. Samantha Downes asks whether it is fair for women to pay higher premiums
There has long been a gender gap in insurance premiums, and insurers argue this is fair. For example, statistics show women are less likely to have motoring accidents than men. In fact of all motor accidents involving people under the age of 20, over 80% were caused by men which is why insurers charge them more to insure cars.
So men could consider it a payback that when it comes to critical illness (CI) and income protection (IP) women tend to pay steeper premiums.
While life insurance may be cheaper for women, the fairer sex remain more likely to develop the long-term and debilitating illnesses covered by CI and IP. This means they pay considerably higher premiums.
A few years ago this differential in insurance pricing was ruled by the European Union (EU) to be a form of sexual discrimination. Article 4 of the EU Gender Directive, which came into force last December, was introduced to prohibit member states from using gender alone as a factor in calculating premiums for insurance and related financial services.
But the UK's insurance industry did manage to win some concessions. Current premiums and benefits may continue to legitimately differ between the sexes as long as the underlying actuarial and statistical data on which the calculations for premiums are based is reliable, regularly updated and available to the public.
Rules and regulations
In order to stay 'opted-out' of the directive, insurers must stick to other guidelines set out by the directive.
These include stipulations that the data used to price policies must be published in an understandable form, intelligible to a non-insurance expert, data used to price products available by 21 December 2007 must be published before 30 June 2008 and data used to price newer products must be published within six months of the first new contract issued.
Insurers claim that it would prove a nightmare if the UK ever had to opt back into the directive. The reality is men and women develop different types of illnesses and these differences are reflected in the pricing of protection. If these conditions are not reflected then many customers will find themselves paying more, which would make differential pricing the fairer option.
Roger Edwards, products director at Bright Grey, says women on average live six years longer than men. While this means men pay higher life insurance premiums, longevity increases the likelihood of more illness, which means women pay more for some forms of insurance.
Even so, Edwards argues the insurance industry has been able to keep pricing differentials to a minimum. 'At some stages, men will pay higher IP premiums than women.' He also argues differentials in payment depend on the age at which cover is taken out. If a woman takes out CI in her 30s she will pay a higher premium than her thirty-something male counterpart.
'This is because, in their 30s, women are more likely to be diagnosed with serious illnesses such as cervical or breast cancer. Once they get into their forties the risk subsides; men can then expect to pay more because their likelihood of developing heart disease increases.'
Freedom of information
Another stipulation of the directive is to have information that justifies premiums in a centrally accessible location. The Association of British Insurers is expected to launch an accessible database for consumers and insurers this summer. The database will have information such as mortality rates and claims data which will allow insurers to continue charging premiums on a gender basis.
In the meantime the only claims information available comes from insurers. The information shows an obvious divide between the sexes when it comes to developing illnesses.
Of the CI policy claims made by Aegon Scottish Equitable policyholders between August 2006 and 2007, cancer accounted for 69% of claims made by women and 43% of those made by men.
Psychological problems were also higher among women, accounting for 20% of claims, compared with 12% of men's.
Of IP policies the most common claims for men were for musculoskeletal conditions at 43%, while female claims were split between psychological, cancer and musculoskeletal illnesses.
Age plays a big factor: the younger a woman the more likely she is to claim. A total of 47% of women's claims were made before the age 40 while half of male claims were made after the age of 51.
Legal & General's latest claims information puts the split of life insurance claims at 66.1% for men and 33.9% for women. Its claims history, between 1996 and 2007, shows a different story for CI with 42% of claims made by men and 58% by women.
Cancer was the most common reason for female claims on a Legal & General CI policy, 63% of claims were made by women, while 88% of claims for heart attacks and 56% of stroke-related claims were made by men.
Aegon Scottish Equitable's latest premium data shows how pricing reflects this gender split.
For example a non-smoking man aged 41 will pay £12.76 a month for £100,000 worth of life cover, compared to £10.64 for a woman. If she were to take out CI at that age the woman would pay less than the man, at £55.96 a month compared with £60.29. However when it comes to IP, a woman pays nearly twice the premium of a man - £38.61 compared with £23.40 for £100,000 worth of cover.
IP and, to some extent, CI costs for women can also be explained by lifestyle factors. Claims for stress-related illnesses have rocketed among women. More women are entering occupations and managerial levels previously dominated by men. Bright Grey says it has noticed an increase in the number of teachers now claiming CI.
While insurers can take the 21st century lifestyles into account they still remain bound by some biological factors including pregnancy. Edwards says: 'This remains an issue for the industry, because while we can't take pregnancy into account when pricing a policy, it does sometimes have serious complications, but we cannot price those in.'
This price differential does not seem unfair since medical advances are likely to push the price of IP down, claims Stephen Crosbie, proposition development manager at Aegon Scottish Equitable.
He says increased screenings of the sorts of cancers that afflict younger women are bringing down mortality rates as well as treatment times.
'Increased screening has meant early detection and illnesses are more likely to be diagnosed at a point where non-invasive treatment can be made.'
Breast cancer for example, is becoming more treatable with survival rates improving as patients can have lumps removed without the need for intensive chemotherapy.
It comes down to what Crosbie calls affordability and appropriateness. 'Insurers may need to pay out when someone is diagnosed with an illness but may not need to pay out such a large amount.'
Crosbie points to developments such as severity-based pricing. This commits the insurer to paying out only if the condition is of a certain severity. 'This allows us to keep premiums down but also pay out when necessary. The challenge is for us to work on making that as transparent as possible to consumers.'
Matt Morris, policy adviser at LifeSearch, says the only way to keep premiums down for female clients is to try to encourage them to take a policy earlier, preferably with a deferred period. If the premium is too big for the client's budget, advisers should encourage them to look at some initial cover they can then add to later.
At a time when household budgets are more stretched than ever and the threat of redundancy looms large, any legislative changes, whether they are about sexual equality or not, will do little good to anyone. Edwards says: 'Pushing up prices would mean an already stretched demand for protection would fall. That is not something that we want in this current climate.'
Samantha Downes is a freelance journalist.
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