EU gender discrimination directive

UK firms are allowed to price their products differently for males and females where they can rely on credible statistics. MPFS only seeks to adopt differential pricing for 2 products - life assurance (level term assurance & mortgage protection plans) and income protection plans. The statistics we rely on are national statistics derived from similar plans written by other insurance firms and published by the Continuous Mortality Investigation (CMI) bureau. A summary of these statistics may be found at www.actuaries.org.uk/knowledge/cmi/gender.

Life Assurance

Life assurance premium rates are derived from detailed CMI mortality statistics, which differentiate death rates by age, gender, and smoking status. To the extent that these statistics reflect the difference between genders, they are now published in simplified form by the CMI bureau - for the purpose of the gender discrimination legislation. Click here (to be transferred to the CMI Bureau - Life Assurance web page).

For most age groups, this shows male mortality being between 130% and 160% of female mortality, but at young ages the differential is over 200%. In consequence, the rates we charge for males are higher than for females.

Income Protection

Our income protection rates do not vary by age - we take the view that the increasing likelihood of claim with higher ages is offset by the shorter period over which a claim could be paid (potentially to age 60, on the current policy conditions). We introduced a non-smoker discount in 2007.

Over the period we have been running the income protection plan, it has been clear that average claims costs on females were well in excess of those on males, for otherwise equivalent risks. Our statistics are not based on sufficient data to price this product fairly, so we have in the past charged females approximately 50% more than males - at the lower end of the range of loadings applied by other firms for similar business.

We are now required by UK legislation to rely on data published for the purpose of the gender discrimination directive. The CMI bureau publishes 2 types of data for this purpose for income protection plans - inception and termination rates. Click here (to be transferred to the CMI Bureau - Income Protection web page) . Inception rates are the frequency at which policyholders claim (due to becoming sick and being placed on reduced pay). Termination rates are the frequency at which claimants cease to claim because they return to work (or die).

The combined effect of the number of claims and the average claims cost is that male claims costs are estimated to be about 50% of female claims costs. This is equivalent to female premium rates being 200% of male rates. To reflect this, we will be increasing the premium loading for females closer to 100% (from 50%). Our first review will take effect from January 2009, when we will next be reviewing the policy terms, for both existing policies and future business.