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Europe, Car Insurance and Women-Drivers

Car insurance is just like all other forms of insurance, in that the cost of the cover depends on the calculation of risk. However, thanks to a recent ruling by the European Court of Justice, car insurance premiums will no longer be allowed to be decided on the basis of gender. In short, the consequence of this decision is that the cost of car insurance, whether it is provided by specialist insurers or banks like Santander, is set to rise for women drivers.

The impact of this decision, which focuses on European law concerning sex discrimination, will be significant. The actuarial work that underpins all forms of insurance is in essence about discrimination. Statistics and mathematical models are used to predict the likelihood of insurable risks occurring. Low risk customers can then be offered competitive premiums that reflect the fact that a claim on the policy is less likely than it is for a higher risk group. In turn, higher risk groups are charged more for insurance, a reflection of the fact that a claim on the policy is much more likely.

In terms of car insurance, women drivers are less likely to need to claim than male drivers, and this distinction is particularly marked when it comes to young people. Young male drivers tend to drive faster, and thus be involved in the more serious road accidents that occur at speed. In fact, a third of young male drivers will write off a car within the first year of driving. Young women drivers are half as likely to do this. This fact alone goes a long way to explaining the status quo concerning car insurance premiums.

Currently, the differential between car insurance costs for young men and women is striking. According to The British Insurance Brokers' Association, the average cost of car insurance for an 18 year old man is £4,400 per year, while a young woman in an equivalent car will be charged the significantly lower sum of £2,700.

When the new European ruling comes into effect in December 2012, the predicted consequences look pretty unwelcome all round. Some senior insurance industry figures predict that there will be no real decrease in car insurance costs for men, with other experts estimate that any possible reduction may amount to just 10%. Far more importantly, the AA predicts that the annual cost of car insurance for young women will rise by about £400 per year, an increase of around 30%.

It is not just car insurance costs that will be change thanks to the new ruling, with the calculation of pensions and life insurance also affected. In the short term, women and especially younger women can combat the consequences of this change in law by renewing or switching to a new car insurance premium before December 2012. In the longer term, risk reduction techniques such as driving a lower powered car may become more and more important for women drivers seeking to keep the cost of car insurance reasonable.