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How the new EU gender directive has affected life insurance

This article is part of
Guide to Life Insurance

Since women statistically live longer than men, life insurance had historically been cheaper for women than the equivalent cost of a policy for a man of the same age.

“With the harmonisation of cost, policies for men are now a little cheaper and those for women are more expensive,” notes Michael Owen, director of Brooks Macdonald Financial Consulting.

“However, anyone who had a pre-existing policy should not have noticed any change in the cost of their insurance because of this; the change affected only new policies.”

Peter Hamilton, head of Zurich UK Life’s protection proposition, says: “Coupled with changes to life office taxation, it has meant an increase in prices of some 15-20 per cent for 2013. That said, customers typically over estimate the cost of insurance, and in most cases it still remains cheaper than it was 10 years ago.”

Mr Owen says that, strictly speaking, the claims-to-premium ratio should not have changed overall – “as the risks have not changed” – but it is likely to take insurers a while to adjust their premiums to reflect the changes.

Kevin Carr, managing director of Kevin Carr Consulting, says the main impact on the market the gender changes will have is that it will be harder to switch existing cover on price because rates have recently risen.

“Many people have become used to switching their cover around to save money; however, this is only possible when rates are falling,” he says. “Given the recent increases, which have been substantial in some situations, saving money by switching will no longer be possible.”

Mr Carr adds: “Less churning and re-broking is probably to be welcomed as it means the focus will be more about the quality of the product and the suitability for the client. However, across the industry new business sales may fall significantly because of the reduced ability to switch or re-broke cover due to rising prices.”

Mr Owen notes that the January implementation of the Retail Distribution Review in the UK means that while it is no longer possible for financial advisers to take a commission for selling certain investment products, “pure protection” life insurance policies have been exempted from this change.

“As a result most types of insurance still pay a commission to an adviser out of the normal premiums paid. This is disclosed at the time the advice is given,” he says.