A Break for Boy Racers?

There is nothing like the anticipation of getting your first car. Freedom at last. But there’s also nothing like your first insurance quote to bring you right back down to earth. This is the reality of the cost of insurance for new drivers. And these costs may well be poised to go up (or down depending on your gender) at the end of this year due to a recent decision of the European Court of Justice (ECJ).

The Past

Historically, insurances companies have considered a number of factors when assessing the premium payable. These include driving experience, claims history and gender. According to the Road Safety Authority, the majority of young drivers found to be responsible for accidents are male and more male young drivers are killed on the road than young female drivers. These are the facts. And up until now, insurance companies have used these statistics as a rationale for differentiating car insurance costs between young men and women.

The Case

On March 1st, in the Tests-Achats Case, the Supreme Court of the EU ruled that it is illegal to charge men and women different rates for insurance on the basis of gender. Under the EU’s Charter of Fundamental Rights, discrimination is prohibited on a number of grounds and one of these is on the basis of sex. The Charter also sets out that equality between men and women must be ensured in all areas. Up until now, individual Member States could differentiate between men and women in the area of insurance, where the basis for differentiating was supported by actuarial evidence. In plain English – if motor insurance companies could point to facts and figures proving that young men caused more accidents and drove faster than women, individual countries like Ireland could permit the insurance companies to consider these facts when setting insurance rates.

The Tests-Achats Case changes this position and affects the entire insurance industry. Specifically in the case of motor insurance, it was argued that there is no evidence that women drive more safely simply because they are biologically women and it is unfair to penalise male drivers for something they can’t control – ie the fact that they are male.

The Future

So what does this mean for car insurance going forward? This ruling will come into law in December 2012 and it’s difficult to say what exact effect this will have on insurance premiums. Many commentators argue that premiums for young male drivers will come down, while young female drivers will end up paying substantially higher rates essentially subsidizing their male counterparts. Others argue that while in the short term, premiums may go up, overall the insurance industry will be forced to develop more advanced and fairer models to assess risk.

We will see. However, what is clear, is that in the short-term there will be uncertainty in the insurance markets and when there is uncertainty, prices generally go up.

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