Protection: Sex, tax and RDR

They say bad things come in threes and that is certainly the case for the protection industry. The end of this year will see not one game changer in the industry, but three.

The ruling last year on gender discrimination from the Belgain Test-Achats case that insurance companies cannot base pricing on gender will doubtless have a massive impact on the industry. In addition, the way that protection companies’ profits are assessed will change in 2012, meaning that gains made on investments elsewhere in the business cannot be used to offset the expenses of the protection business.

Third, the juggernaut that is the RDR will hit at the end of this year. While the protection industry is on first impression sheltered from the main onslaught of banning commission, ripples will still hit the sector.

What is more, rather than staggering these events throughout 2012, they will all hit come December. So rather than seeing stage each of these events occur in stages, it is likely we will see a merging of them all, but will it create a big shake up in the sector?

One for the money

In a ruling on 1 March 2011, the European Court of Justice said that gender could not be used as a deciding factor when calculating rates for insurance, including annuities and protection. While the industry breathed a sigh of relief that the deadline was set as 21 December 2012, rather than being introduced immediately or retrospectively, it was nevertheless up in arms at this game changing move.

Initially seen as a punt into the dark, the case brought by Test-Achats was at first thought to have minimal chance of succeeding. Many see the ruling as political correctness gone mad, while others state that unisex pricing will level the playing field considerably.

Understandably, the implications for the protection market are different to those for the car insurance market. Certain illnesses, such as breast cancer, are far more prevalent in females than males, but this can no longer be used as a deciding factor in price. Instead family history of such illnesses will have to be relied upon.

Due to the uncertainty of whether the deadline would be imposed immediately after the ruling, most protection companies are ready to go with unisex pricing, having systems in place already, but it is unlikely we will see companies rush to market.

Following the ruling, Viviane Reding, EU justice commissioner, said, “I expect that insurers that move to a unisex tariff first will have a competitive advantage on the European market.” However, most protection firms would disagree.

Roger Edwards, proposition director at Bright Grey and Scottish Provident, says that it would not be sensible to be the first to launch the new pricing structure and predicts a period of “pricing mayhem” around the deadline.