Will unisex pricing soon hit the annuity market?
Last week in this space we talked about the European Court of Justice ruling that insurance companies must stop charging different rates for women and men by the end of next year.
Canada allows insurers to take gender into account when pricing life-insurance products, though the rules for auto insurance vary across the country.
But, it’s not just insurance rates that might be affected. In fact, the unintended consequences of this judgement are already starting to emerge as older EU consumers try to determine what these changes might mean for them.
Men coming up to retirement, for instance, may consider moving their after-work plans up a bit to get a better annuity deal before the lower unisex rates are introduced.
Actuary Stephen Richard points out that large employers' defined benefit pension schemes are free to either self-insure members’ pensions or buy annuities for their pensioners. And many schemes actually do both, he explains to Citywire.
“If a unisex annuity rate is cheaper than the female rate, then pension schemes could selectively buy out female pensioners,” he warns.
This would distort the annuity market as there would be many more women buying annuities and many fewer men.
“Insurers will be only too well aware of this, and will price accordingly. The safest price for them to charge is one based on female rates,” he says.
Critics worry that life companies will play it safe and simply rework the most conservative unisex rates with the result that they will therefore likely be the largest, and perhaps only, beneficiaries of this change.
A few weeks ago, Canada Life decided to pull a guarantee period on its annuity quotes out of fears related to these gender-based pricing issues. And it appears they were quite prescient. It now looks like pension pricing is something else to watch for as these potential changes ripple through the Canadian marketplace.
Do you expect a significant shift in annuity pricing along these lines? Will you try to take advantage of it?
By Gordon Powers, MSN Money
Posted by: Mark Schneider | Mar 7, 2022 6:15:25 PM
Annuity changes made to be politically correct fly in the face of common sense. Way to many people try to be experts at everything and masters of none. The result is change for change sake and costs passed on to the unwitting consumer. Put this one down on the same list as 1/ entitlement expectations and 2/ each generations experiances to be unique over all others.
Posted by: Claire | Mar 28, 2021 10:37:35 AM
Mr. Powers' article oversimplifies Annuity pricing and confuses two issues. His article last week about the European Court of Justice ruling applied to AUTO insurance. This week, he applies the same logic to annuities - but the pricing model and risk profile of the two products are very different.
You may be able to apply his argument for TERM ANNUITIES, because they are less sensitive to mortality risk. But PENSIONS provide lifetime income, so are actually LIFE ANNUITIES. These are priced with life expectancy as a large factor. Statistically, women live longer than men, so actuaries build that into the pricing models -- they have to guarantee a longer stream of income for women.
The difference between male & female pricing has absolutely nothing to do with discrimination, as your previous article suggested. With annuities, it has everything to do with life expectancy.
Posted by: Tim Landry | Apr 19, 2021 1:13:27 PM
Anyone who would advocate same sex pricing for life or disability or critical illness insurance or for annuities does not understand the basics of these products (PS I am told that we DID have unisex life insurance pricing up to the year I was born (1945)) - but then we got wiser