Is gender equality in insurance just a modern-day honeypot?

Jeremy Clarkson once said on Top Gear that "the only way young men could afford motor insurance is if they were to cut off their genitals". Thankfully the implementation of the EU Gender Directive in all EU Member States this December will make this somewhat drastic measure redundant.

From 21 December, insurance companies in both Ireland and the UK will no longer be able to calculate premiums based on a person's gender because the European Court of Justice has now deemed it 'unfair'. But unfair to whom? 

The use of gender in calculating insurance risk has been a fundamental principle of the risk-based motor insurance structure for decades. Not allowing Ireland and the UK to continue to avail of the 'insurance opt-out' provisions within the original 2004 EU Gender Directive, means that women drivers are likely to see sharp increases in the premiums they pay from December 21.

Given that this issue was flagged over 12 months ago the question faced by motor insurers operating in the Irish and UK markets has been to either increase female driver rates or reduce corresponding rates for male drivers. This was a somewhat rhetorical question as the answer was obvious - women, who statistically have fewer and less serious crashes than young men, were going to have to pay more. Enter the year of the discount.

Insurance cover tends to be sold in 12-month blocks and it is this product feature that lays bare the real intention behind the current round of female-centric discounts. Knowing that 'the only way is up', motor insurers in Ireland and the UK seem to have embarked on a market-grab strategy by advertising attractive rates for female drivers and, in some cases, encouraging them to switch insurer mid-year in advance of the looming December 21 deadline.

This industry-wide initiative is based around what the industry calls 'retention rates' which, when gender can no longer be used by insurers to differentiate insurance premiums, are expected to rise within the ranks of female policyholders who have changed insurer before the deadline. Essentially, insurers are betting on the fact that such new (female) policyholders  are more likely to stay with that insurer (at a substantially higher premium) once their initial 12-month policy falls due for renewal in 2013. This is especially true for female motorists under 21 who are expected to be the hardest hit by what many are describing as an unfair EU ruling. Is the industry right? Only time will tell.

In some way, the motor insurance industry has become a modern-day 'honeypot' - enticing as many females as possible to savour their 'low-price' motor insurance offering. Unfortunately, like all honeypots, the initial euphoria soon fades and is rapidly replaced by years of regret. 

A motor insurance market (especially in the UK) that has struggled to stem historic and unsustainable losses on motor insurance portfolios has been given a lifeline and, like any commercial animal, the industry is not about to pass up this once in a lifetime opportunity to return to profitability. 

Caveat emptor...