A legal car crash?

Tim Garratt has catalogued more than once the ‘computer says no’ nightmare of dealing with car insurance companies.

This wearying process may become even more robotic and infuriating thanks to a European Court of Justice decision which I suspect many of you are already familiar with.

Contrary to what some reports suggested, the ECJ didn’t suddenly decide the start meddling in car insurance premiums. It decided that EU member states could no longer delay implementing a 2004 directive which said sex discrimination in the delivery of financial services shouldn’t be allowed.
Fair enough, you’d think. But it means that the standard UK insurance industry practice of charging men more for cover than women is unfairly discriminatory – that gender alone cannot be a basis for different premiums.
At first glance, the majestic simplicity of the ECJ decision flies in the face of three basic concepts in life – risk, common sense and statistics.
Putting a price on risk is one of the key concepts of economics, and it is the reason why insurance exists: setting aside sums of money which will cover damage or loss.
Logically, the price you pay for risk should reflect the level of risk that you take. It’s a beautifully simple and easily understandable concept. And when it goes wrong, we all take a hit – which is just what has happened in the wake of the credit crunch.
One of the key reasons why it is now significantly harder to gain credit is that it is now being priced at levels which reflect the risks of the lending itself and the economic circumstances against which that risk is being taken. Rather than a chase for market share in lending.
Common sense says that a one-size-fits-all approach to anything is likely to end up being unrealistic and inflexible. Dangerously so when you apply it to the concept of risk analysis.

Statistics are the real killer in this case (almost literally, I’m sorry to say). Countless analyses and research studies have shown that men (particularly young men) ARE more likely to be involved in accidents than women.

In other words, the ECJ’s judgement could be seen as a denial of statistical reality.

However…I’m not sure it’s that straightforward. If insurance firms do base their premiums on the simple difference in accident rates between men and women then they are actually making a conveniently crude judgement.

All sorts of factors play a part in the risks people take in life – social, financial, psychological, chronological and, yes, sexual. But it isn’t gender alone which determines that blokes have a greater turbo nutter bastard tendency than women.

If insurance firms crank up premiums in response to this decision then they will be guilty of a convenient cop-out, one which the EU – which kicked this whole process off – will have a duty to look into.

If, however, the industry now decides to apply a little more science to the way it calculates premiums then we could end up with a more accurate price being put on the risks individual car drivers take, whatever their sex.

Don’t hold your breath, though.