Regulation: Draft European directive could lead to hikes in life and IP premiums
The Financial Services Authority (FSA) has aired its concerns at the draft European directive on gender discrimination, saying it could cause insurers to hike life and income protection premiums.
Speaking at the Global Financial Leadership Forum, Callum McCarthy, chairman of the FSA, said the result of insurers being unable to price men and women differently would mean 'departing from unrealistic assessment.' He called for the Government to look at the effects of the new rule in more depth.
"The FSA would expect, as well as rather arbitrary effects on both men and women, that the proposed directive would increase the overall cost for consumers of buying insurance cover. This is because firms will not know in advance the proportions of men and women who might in the future buy their non-gender differentiated products. They are therefore likely to include margins in their pricing of products to cover the risk that their assumption is incorrect; and they may also be required to hold more capital to cover the risk.
"I very much hope the Government will require this proposal to be closely examined. Regulation works best when it recognises, rather than overrides, reality," he said.
McCarthy estimated that the implementation of the directive would increase the premium payable by a woman aged 40 for life cover by 16%, against a fall in a man's premium at the same age by 8%. The increased capital needed to be held by insurers to cover increased risk could exceed £1bn, he said.
Mary Francis, director general of the Association of British Insurers (ABI), said the FSA's intervention in the debate was highly significant. "The regulator is joining a growing consensus in the industry and outside that can see that these proposals would hurt many millions of customers. The FSA has to speak up for the consumer interest and for the good order of financial markets. On both counts, the draft directive in its unamended form would fail the test," she said.
James Wrynne, director at UK and Ireland Insurance Services, agreed the directive could have devastating effects. "Forcing insurers to ignore gender when assessing risk means that an unfair element of subsidy would be introduced. Ultimately, consumers will pay the price."
