The European Court of Justice (ECJ) has ruled that from the 21st December 2012, it will become illegal for car insurance companies to discriminate on the grounds of gender when calculating car insurance premiums.
This has provoked a mixed response from the European community. While many believe that branding all male drivers more dangerous than females is unfair; others are claiming it would be unfair to force women to cover the costs of male drivers with statistical evidence pointing to the fact that they do make more expensive claims than female motorists.
On the back of this ruling, a number of young motorists are calling on the ECJ to take a similar view on age based discrimination; with many young motorists being forced to pay up to 80% than older drivers.
We therefore take a look at the various opinions which have been given on the topic and determine whether or not discrimination can ever be considered a good thing.
All those in favour…
The ECJ made this ruling following a campaign by Belgian consumer group Test-Achats. This proves that there is obviously sufficient public support to warrant this change in regulations. However, there also seems to be support from some of the industries leading protagonists.
Martin Lewis from moneysavingexpert.com has been one the key players in the industry to back the ban on gender discrimination, claiming: “gender price differences there are based on behaviour. Why should one man pay more because others behaved badly?”
Lewis added that discrimination on the grounds of gender is no different from discriminating on the grounds of race. This viewpoint has been supported by MoneySupermarket.com’s Steve Sweeney who commented: “Ultimately, I think people should be treated fairly based on their own individual risk profile.”
As well as the moral arguments surrounding this ruling, there are also discussions about the possible financial savings. The Association of British Insurers (ABI) believes that uninsured drivers are costing the UK insurance industry £2 billion every single year. Research by MoneySupermarket.com suggests that 13% of the uninsured drivers on the road claim that they are driving without insurance because they simply can not afford to pay the cost of cover. This mainly consists of young male motorists who are on the receiving end of the highest car insurance premiums.
Law abiding motorists are being forced to cover the additional costs drawn up by the uninsured drivers by paying higher car insurance premiums; and it is therefore possible that overall savings could be made by making car insurance more affordable for the groups that are being forced out of the market by car insurance companies.
Age discrimination a factor too
As has been mentioned; young male drivers are the group of motorists who are on the receiving end of the highest car insurance premiums. This is because not only are male drivers more likely to make a claim than females; but young drivers are also far more likely to be involved in an accident and make a claim than older motorists. This is proven by the fact that young drivers under the age of 25 are involved in 25% of the fatal road accidents on the road despite only making up 12.5% of the driving population. Young male drivers can therefore expect to pay almost 250% more for insurance than what is paid by the average motorist.
Older motorists are being targeted too, with drivers over the age of 70 more likely to be involved in accidents than middle aged motorists. Age Concern’s Gordon
Lishman corroborated this, stating “The insurance industry is riddled with age related practices causing significant harm to older people.”
Help the Aged’s Paul Cann is therefore calling for the ECJ to make a similar ruling when it comes to the use of age in the discrimination of motorists by insurance companies, claiming that age alone should not be used as a basis for premiums: “Age alone should not be the basis for an insurance premium or quote. Insurers are entitled to make commercial decisions, but these should be based on evidence of risk and not the date on a birth certificate.”
All those against…
However, not everyone supports the elimination of discrimination in insurance. The AA’s Simon Douglas believes that the ECJ ruling will ultimately be bad news for the majority of motorists by forcing them to cover the costs of motorists who are statistically more likely to cost the insurance company money by making a claim: “An unintended consequence of applying age equality to car insurance will be a reduction in premiums for a few at each end of the age range but an increase for the majority.”
“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.”
Additionally, David Powell from Lloyd’s Market Association believes that by making insurance cheaper for young male drivers they will become an even greater risk on the road as they will be able to afford to run higher performance vehicles which will increase the likelihood of them being involved in an accident and making a claim; hence pushing up premiums for the majority further.
Is discrimination fair?
Opinion is split over the discrimination issue, but what is clear is that the premiums being paid by young drivers in particular are ridiculous. The average premium for a driver between the ages of 17 and 22 currently stands at £2,294; this is 243% higher than what is paid by the average motorist. However, these prices were not simply forcing motorists off the road as had been expected; with an increasing number of drivers simply deciding to go without the bare legal minimum levels of cover required by law instead.
However, only 13% of the uninsured drivers questioned as part of a MoneySupermarket.com survey stated that high prices were the reason for them not having a car insurance policy. The vast majority simply claimed that they lacked awareness and did not know that they need an insurance policy at all times.
If this survey is an accurate reflection of UK motorists then making an effort to reduce young male driver premiums could well have a devastating impact on premiums paid by the vast majority. As noted by Lloyd’s Market Association’s David Powell, this could also result in more young drivers purchasing high performance vehicles; making it more likely that they will claim and hence pushing premiums.
Based on this evidence, it could therefore be argued that it would be unwise to force every motorist to pay the same premiums each year as it would simply force good drivers to cover the costs of the dangerous and inexperienced motorists that occupy our roads. However, is it any more unfair to force a safe 18 year old motorist to cover the costs of other less mature motorists that occupy their particular age group?
Insurance premiums have always been based on the statistical likelihood of a particular policy holder making a claim. The alternative to this would be to force all motorists to pay the same amount for insurance. Either method will ultimately result
in some individuals who are statistically less likely to make a claim, being forced to cover the costs of policy holders who are considered to be more risky.
There is therefore no right or wrong answer to this, and your viewpoint on whether or not discrimination in insurance is a good thing will likely be based on the impact that it would have on you.
