Angoel (angoel) wrote,

The European Court says that it's illegal to charge women different insurance rates from men, and to pay them lower pensions because they tend to live longer:

The result of this will be that the consumer is generally worse off, due to something known as selection. Essentially, people select things which are financially advantageous to them, and you have to take that into account when setting prices. Let us consider an example:

Mr Cough has a severe illness and does not have long to live. Mr Pure is perfectly healthy and expects to live for a very long time. They are otherwise identical. The insurance company knows about the medical conditions of these two people, and will offer Mr Pure a much lower premium for his life insurance.

Now suppose that the life insurance company is not allowed to discriminate on the basis of medical conditions, and has to offer both of them the same terms. Naively, you might think that the premium would be halfway between the previous premiums for Mr Cough and Mr Pure.

If this were the case, Mr Cough would look at the premium and pounce on it - it's definitely good value for him. Mr Pure, on the other hand, would decide that it was a waste of money and not take it. The insurance company would end up insuring Mr Cough at an unprofitable rate. To ensure profitability, the insurance company has to assume that Mr Pure will not insure himself, and set the premium at a level where insuring Mr Cough is profitable (i.e. the rate which they previously had for Mr Cough).

As a result of this ruling, I would expect the tendency to be for young female drivers to self-insure (take the legal minimum of third party, fire and theft, and arrange for themselves / parents to foot the bill if they have an accident) and for males to make retirement provisions in ways other than buying annuities. The insurance prices for young males and female annuities might change a little, but generally I'd expect them to remain the same. As I said above, everyone will be worse off.
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