Notice the position of the apostrophe there.

I am sure you have all seen the outcome of the European Court of Justice case 1st March to establish whether insurers are allowed to take into account sex as one of the many risk factors they use in calculating premiums.

From 2013 it will be an illegal act if insurers use sex as a risk factor.

This is not great news for specialist insurers like Sheilas’ Wheels who have taken the initative in offering preferential rates to women drivers.

Whilst this may be another good step on the way to creating true equality it does raise some interesting issues for the whole concept of insurance rating, an art grounded squarely in the statistics of risk-avoidance.

Traditionally insurance premiums are calculated to reflect the risk that is being taken by the insurer. To calculate this risk many factors will be taken into account such as claims costs and expenses already paid out, trends in certain areas and age groups, type of vehicle, security fitted and of course a profit margin for the insurer.

In assessing the level of risk insurers will look at the breakdown of claims paid into different groups – and of course sex has always been one of these.

There is no denying what the statistics show: male drivers, especially the younger ones do have more accidents per capita in comparison to their female risk equivalents; i.e same car, same area, length of driving experience.

• Men are 3 times more likely to be involved in a fatal car accident than women;
• Men account for 80% of speeding fines in the UK;
• 44% of men have used a mobile phone whilst driving compared to 30% of women;
• 20% of men have fallen asleep at the wheel compared to just 6% of women;
• In 2003 93% of convicted drink drivers were men.

These statistics would seem to suggest that the sex of a driver is a reasonable way for an insurer to assess the risk they are accepting and should not be looked at any differently to any other underwriting consideration.

What on earth next?

This is not NG1.

Am I missing something?  Is it the maths here that’s being sexist or the mathematician?  Perhaps we could help the statistics to be less narrow minded by dropping in a few extra numbers?

The EU ruling rather makes one think this madness might spread to other classes of insurance as well.

Is it fair for example to charge a 50 year old man more for life insurance than a 45 year old?  Whichever way you look at it this is age based discrimination, for good or for bad.  What about charging higher premium’s against theft in Nottingham’s infamous NG1 postcode area?  Is this discrimination against the people of Nottingham?  Yes.

But whilst it’s discrimination it’s restricted to a very narrow band.  If NG1 residents go looking for non-theft insurance for instance they won’t be subject to the same maths.

And maths is exactly what it is.  As far as I’m aware the actuaries who come up with these algorithms don’t actually have anything against men, old people or the unwashed students delightful people living in NG1.

Insurance Theory and Discrimination are the same thing.

In researching this article, I amused myself (somewhat) by checking the Wikipedia definitions for both “discrimination” and “actuarial science”.  It seems that:

“Discrimination” is the cognitive and sensory capacity or ability to see fine distinctions and perceive differences between objects, subjects, concepts and patterns.

“Actuarial science” is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries.

There’s certainly some common ground there.  Can either exist without the other?  You might forgive me for thinking “No” and asking “Where will this end?” !

The nasty conclusion

Having been given a situation where they cannot charge a woman less – which ought to mean they should charge a man less as the risk is the same – insurers will predictably increase women’s premiums rather than reduce the men’s.

There is no logic to this approach outside of plain old fashioned (albeit mercenary and unfair) commercial practice;   if insurers were happy to accept a premium for a woman driver and now have the same details for a man, beyond any doubt the man’s insurance should reduce.

There has been no increase in risk for the woman driver so what is the justification for increasing their premium?  Unfortunately the reason for the increase is that the premium for men cannot be decreased in line, because they are the ones making all the claims

Perhaps it’s been a bit of a sour victory for equality if men are still being proven to be more dangerous drivers and women are paying the price.

And once again insurers have done nothing to improve their image.  It was a great marketing opportunity missed but perhaps one that not even they could afford given the risk involved and the overwhelming maths.

I leave you with a quote from Lord Davies of Stamford speaking in the House of Commons 1st March:

“it is a pretty remarkable day when an insurance market is instructed to operate contrary to actuarial principles”.

Perhaps we will be seeing more remarkable days in the years to come.

—

As always, I’d love to know whether you agree.  Has the ruling affected your business or your premiums?  Let me know!

It's not this bad... well not yet anyway.

It’s not long since we had the latest round of flooding in the UK and I remember when it hit.

As I watched the news that night I couldn’t help thinking “Here we go again.” and “This is just getting worse and worse, we should have seen this coming”. I doubt I was alone!

For many years property developers (in conjunction with local authority agreement) have been encouraged to build in areas that have previously been known as flood plains. So it should hardly be a surprise that they are now flooding again.

Add to this some consideration for climate change and you might begin to wonder how we find ourselves in this position.

Working closely with insurers and insurance brokers every day I am very familiar with insurers’ views on covering things which are rapidly becoming a certainty rather than a risk – so I thought I would dig a little deeper.

Some of the figures are pretty worrying in terms of what has already been paid out over the last 10 years. Here are some statistics that might make you ask yourself just how long can this go on…

• Flood claims since 2000 have increased by over 200%.
• One in six homes are currently at risk of flooding.
• Nearly 500,000 homes face a significant flood risk and this is expected to rise beyond 840,000 by 2035.
• The amount paid by Insurers since 2000 now exceeds £4.5 billion.

These are worrying figures indeed and one has to draw the conclusion that this cannot and probably will not be allowed continue.

When you then look at this in conjunction with the government’s recent announcement to cut spending on flood defences we appear to have a disaster just waiting to happen.

I hope you can swim.

Many people will of course think that none of this really matters as I have flood insurance – indeed you probably have – but for how much longer ?

An agreement was reached between the Insurance Industry and the Government a few years ago to ensure that flood cover remains available to all existing customers.  Note the word ‘existing’; this insurance won’t be much use when you want to insure a property in a known flood area for the first time!

What has also largely escaped the news is that this agreement expires at the end of June 2013 and at present insurers are under no obligation to extend this.  And they are not very likely to do so when claims continue to rise and the government is not investing in flood defences.

If something becomes a virtual certainty it is not the sort of thing that insurers will cover and that certainly appears to be what is happening.

Not being able to obtain flood insurance will make some properties unfit for sale, as potential purchasers will not be able to secure a mortgage or advance against a property that is not fully insured.

The outlook is bleak: a vicious circle of house sales down, no upturn in the economy, no extra government money to spend on flood defences, more flooding, yet more claims and finally no more flood insurance for anyone who needs it.

Did you like this article? Do you have an opinion on it?

Yes | No

Risk in Space.

Popular Mechanics has an interesting article on the subject of NASA and risk aversion.  It seems that pushing the limits of human endeavour might be at odds with preservation of life.  Finding new frontiers, it seems, is a bit risky.

The unsuspecting shuttle Discovery astronauts, led by pilot Kevin Ford (L) and Cmdr. Rick Sturckow (R) at the Kennedy Space Center in Florida.

Well you could have blown me down with a feather.

Aerospace pioneer Burt Rutan bluntly put it like this: “if we’re not killing people, we’re not pushing hard enough”.

That make me wonder… are astronauts insured?

Well, as you might imagine, the answer to this question varies from astronaut to cosmonaut (!) and from era to era.

During the 60s and 70s it would appear that private life insurance was not available to astronauts.  Autograph Magazine has a good post about how astronauts of the time used their own autographs as a form of life insurance for their families.

An astronaut 'life insurance card', autograph from the early space era.

In 2003, space shuttle Columbia disintegrated during re-entry over Texas on its 28th mission, killing all seven crew members.  At the time Los Angeles Times stated that NASA had no special insurance for the astronauts.  NASA spokeswoman Eileen Hawley was quoted as saying “There is a limit on what type of benefits the federal government provides,” though the article also states that “Five of the astronauts were members of the U.S. military and eligible for coverage under service members group life insurance, which has a standard death benefit of $250,000. The monthly premium ranges from $20 for the maximum coverage to 80 cents for a reduced coverage of $10,000. There is no increased payment for military members if the death is work-related. ”

In 2007, several Australian newspapers including this one, ran articles on NASA’s secret payout of $US26.6 million to the families of seven astronauts who died aboard space shuttle Columbia.  ”Two astronaut families ordered preflight insurance policies through NASA, but the agency failed to obtain the additional coverage before the accident.”

The same article attests that the Canadian Space Agency purchases $3 million to $5 million insurance policies before each flight for all of its astronauts.

The only broadly authoritative work we’ve seen on the subject of insurance in space was by the vice president of the International Space Brokers, as found here on the UNESCO website.  The PDF document describes third party liability both on the ground and during in-orbit operations, and even space tourism: as more of us start to venture out into the void, perhaps this is a subject we’ll be discussing more often.

So in brief, perhaps risks to – and caused by – space explorers are covered to some extent.  And perhaps NASA are becoming progressively more risk averse.

Nevertheless, in space it seems, no one will cover your pre-existing medical condition.

If you liked this article, leave a comment below!  Feel free to ask questions.  You may also like to read why the world needs asteroid insurance!