The European Court of Justice ruling on the use of gender in insurance is widely known, and has been in force since December 2012, but what does this mean to the older members of society when it comes to buying insurance products?
The key product purchased by older people is traditionally a retirement annuity and here women are thought to benefit from the ruling, as they will be able to buy annuity rates on a unisex basis, i.e. the size of the annuity they can buy for the same lump sum should be positively influenced by the fact that men on average have a lower life expectancy.
Obviously this is bad news for male retirees as they will now receive a lower annuity amount due to the need to cross subsidise the female rates. But is it that simple and just a matter of re-balancing the rates to the benefit or detriment of one or the other gender? After all the same number of men and women will reach retirement age as would have anyway and life expectancy itself will not be influenced by a court ruling. Alas no, the decision to purchase an annuity or at least how much money is invested in buying that annuity, remains in most European markets a voluntary, or partially voluntary, decision, and when it comes to buying a large financial product, most people will not behave in an altruistic manner. Quite the opposite, most will only buy a product if they perceive value in it for themselves. As soon as such behaviour creeps into buying patterns and more men, for example, invest their pension savings in property instead of annuities, the ability to cross subsidise is much reduced.
Such a scenario would lead to women ending up receiving the same, or similar, annuity rate as they did under a gender differentiated price. Even ignoring the mathematics and behavioural factors, women in many cases could still lose out as they commonly receive pension benefits linked to their spouse’s savings, i.e. so called widow’s pensions, with these being a proportion of the male rate, so lower male annuities means lower widow’s pensions.
Active aging will also increase demand from older clients for other insurance products with life insurance, for example, becoming even more relevant for the older age market. Just look to the US and the importance of the baby boomers to life insurance sales and you start to appreciate that life insurance is not only driven by earned income. The different risks of death between the sexes remain very high even at older ages, as these are driven by mostly medical factors (with some lifestyle/behavioural factors where the differences have already started to erode), so under a unisex rate the cost of life insurance for women will rise significantly at all ages. This is a real shame as the protection gap amongst women was already a big issue despite previously cheaper insurance prices available and higher unisex rates can only exacerbate this problem.
The 1st March 2011, the date when the court made its decision, may have been a great day for equality, as it was pronounced to be at the time; alas it was not necessarily a great day for women, certainly when it comes to buying many insurance products.
Swiss Re is hosting an event on 4 and 5 March 2013 near Zurich titled Getting the balance right: private insurance for social needs, which is open to the public, and will address both age and gender issues in a very open and balanced format.
John Turner is Head of L&H Underwriting Continental Europe at Swiss Re.