FSA warns over sexless insurance

EU wants to ban the 'gender factor' from pricing insurance

Young women drivers could pay up to 30% more for cover if European plans are taken up, the City watchdog has warned.

Callum McCarthy, chairman of the Financial Services Authority (FSA), said he was "much concerned" about a new EU Equal Treatment Directive.

The controversial plan would ban insurers from charging different premiums to men and women.

The FSA also said overall insurance costs would rise and insurers would need an extra £1bn to offset risks.

The proposed directive is expected to be considered by the EU Council of Ministers on 1 June.

Gender divide

The brainchild of Anna Diamantopolou, the Commissioner for Employment and Social Affairs, it aims to ban discrimination in the supply of goods and services, including financial services.

It is the first time the FSA has commented on the proposals or estimated the likely impact.

The FSA's intervention in this debate is highly significant Mary Francis, director-general ABI

Mr McCarthy said he was not against outlawing discrimination, but he said the proposed changes "overrides realities".

It is a standard practice for insurers to offer different insurance premiums, according to someone's gender.

Life expectancy, for example, plays a role in the pricing of life insurance and annuities.

Mary Francis, director-general of the Association of British Insurers (ABI), welcomed the FSA's comments.

"The FSA's intervention in this debate is highly significant. The regulator is joining a growing consensus in the industry and outside which can see that these proposals would hurt many millions of customers.

'Arbitrary' effect

"The effects will be, in all cases, to require insurers to depart from realistic assessment of risk - a principle which runs counter to good sense," Mr McCarthy said.

According to the FSA's estimates, ignoring life expectancy in the calculation of life insurance would increase the premium payable by a woman aged 40 by 16%. However, a man's premium would fall by 8%.

While ignoring life expectancy for an annuity purchased at 60 would increase the annuity by 2% for women and reduce the annuity a man aged 60 could purchase by 3%.

For motor car insurance, young women drivers were likely to face an increase in premiums of between 10% and 30%.

Increasing costs

As well as "arbitrary effects" such as these, the FSA said the overall costs for consumers would rise.

This is because firms would not know in advance the proportions of men and women who would by different products.

Insurers would have to increase margins in the pricing of products and require firms to hold more capital to cover these risks.