Articles - The X factor, or why women live longer than men


 By Kenneth Donaldson and Nick Chadwick
 Capita Hartshead Actuarial and Consultancy Services
 
   
 
  If you were asked to guess what links motor insurance premiums, the annuity market and the benefits of castration, you might struggle. But somehow, when you find out it’s the European Court, it seems obvious.
 
  Straight bananas? Prisoners getting the vote? Whatever your stance on the influence of Europe, it’s time to take notice as a recent judgment from the European Court of Justice that is likely to have a significant impact on just about all of us.
 
  The Advocate General (AG) had given an opinion[1],now been backed up by an ECJ judgment, that it is not compatible with the fundamental rights of the European Union to take the sex of an insured person into account when setting premiums. Superficially that might seem reasonable, but when you look into the detail things are not quite so cut and dried.
 
  Currently, it is accepted that for the purposes of, for example, car insurance, statistical data which indicates that women tend to have fewer road accidents can be used as a basis for setting premiums. They crash less, so they pay less. Seems fair enough?
 
  The judgment rules that with effect from 21 December 2012, taking sex into account when setting insurance premiums constitutes discrimination. And not just for car insurance but other insurance products where sex is taken into account, such as annuity rates – the rate at which pension savings are turned into regular pension income. This would mean that pension providers could no longer convert a pot of money into pension on different terms for men and women just because, currently, women live longer.
 
  So does this mean pensions get cheaper for women?
 
  Almost certainly not - insurance companies have to stay solvent. As the actuarial profession said in response to the opinion: “If insurers had to give, for example, the same annuity to men and women, despite women living longer, men may well decide not to purchase these more expensive annuities. Insurers providing annuities would then have to price the annuities nearer the higher female rate. So, rather than the cost of an annuity being at the midway point between male and female costs, it would actually be at the more expensive female level[2]”.
 
  So what could this mean for a typical man approaching retirement? We had a look at the current annuity market for 65 year olds with a retirement pot of £100,000, assuming a single-person’s, inflation-linked annuity is required. It may be sobering enough for our man to contemplate receiving a market-leading offer for a single life pension of only £331 per month in return for his hard earned £100,000.  However the best rate offered to women (which might end up being the new best rate available to men if the actuarial profession are correct) is an eye-watering £308 per month, a 7% drop in retirement income[3].  And that’s pre-tax!
 
  Will car insurance similarly become cheaper for 19 year old men? Happily for the rest of us – no! But women’s premiums will almost certainly go up…
 
  What is the legal basis for this judgment?
 
  The “sex directive” currently allows EU Member States to permit differences related to sex in respect of insurance premiums and benefits if sex is a determining risk factor that can be substantiated by relevant and accurate actuarial data.
 
  Continuing to allow for sex differences was always supposed to be a temporary measure, but now we have an end date – 21 December 2012.
 
  Broadly, the AG’s justification for ending such differences was that simply basing premiums on sex does not reflect the complexity of differences between individuals. Social change and the accompanying “loss of meaning of traditional role models” should also be taken into account. Accordingly, she said that the effects of behavioural factors on a person’s health and life expectancy can no longer clearly be linked with his or her sex - the socio-economic conditions of individuals, rather than their sex, are the legitimate determinants for risk in insurance.
 
  Put another way, the AG is asserting that if all social and economic differences were removed, men and women would have identical life expectancies.
 
  Is she right? Is it the stress of being male that causes men to die before their female counterparts?
 
  There is some work that suggests the AG might be partly right. Indeed the longevity gap has been narrowing, from over four years to under three, and continues to close[4].
 
  But she is also flying in the face of a lot of evidence[5]:
 
      
  •    
        We have known since 1750 that males die earlier. This applies at all ages, in all countries. It even applies pre-natally.
      
  •   
  •    
        And it’s not just humans – it applies to all species: nematodes, spiders, primates, you name it.
      
  •  
 
  A study in the US that looked at 72 different causes of death found that only six causes hit women harder than men. (These were breast cancer, Alzheimer’s, asthma, rheumatic fever, pregnancy / childbirth and kidney infections.) All others causes of death be it suicide, murder, heart disease, cancer, pneumonia, flu, diabetes or cerebrovascular disease – hit men more than women.
 
  Yes, some of the reasons for this might well be social, some economic. But against that are biological factors and genetic factors.
 
  The X factor
 
  One argument against the AG’s view is that hormones (oestrogen in women v testosterone in men) affect life expectancy. Oestrogen tends to protect the heart and blood vessels; testosterone tends to increase blood pressure and increase thrombosis. Can this be proved? Yes it can. Amongst other, rather more scientific tests, one stands out in terms of dramatic impact: a test that shows that castration improves male life expectancy, and the earlier the better.
 
  This alarming statement is based on an old study recently re-reported in Scientific American[6] which looked at the mortality experience of several hundred inmates of an insane asylum who were castrated upon admission (around 300). Their mortality was then set against the 700 or so “intact” inmates. Castration early in life could increase life expectancy by up to 14 years!
 
  Although this particular “proof” has since been called into question, other scientific analysis does show there is a genuine difference between the effects of oestrogen and testosterone. This would appear to go to the heart of the argument. Sex based differences, specifically testosterone, matter.
 
  ‘‘In brief, a price is paid for a beard and the presence of functional testes’’ (Hamilton 1948).
 
  There’s also a durability argument, associated with having two X chromosomes. In short, an X chromosome is highly complex and provides a significant benefit in fighting infection / recovering from injury and suchlike. The Y chromosome is simple and seems only concerned with sex.
 
  Women have two X chromosomes, so get double the benefit. Men have one, and one Y chromosome. Thus, in health terms, women win – because they are women. It is hard to see how the AG’s view can be correct.
 
  The genetic argument
 
  To quote Thomas Kirkwood in Scientific American, “Could it be that women live longer because they are less disposable than men? This notion, in fact, makes excellent biological sense. In humans, as in most animal species, the state of the female body is very important for the success of reproduction. The foetus needs to grow inside the mother’s womb, and the infant needs to suckle at her breast. So if the female animal’s body is too much weakened by damage, there is a real threat to her chances of making healthy offspring. The man’s reproductive role, on the other hand, is less directly dependent on his continued good health.”
 
  There is also a strong argument that human genes are hard-coded in such a way that men naturally take more risks and women naturally take more care. 0.5% of the world’s male population carry y-chromosomes that are thought to be traceable directly back to Genghis Khan[7]. This would have been unlikely to happen had he liked the quiet life. Risk taking is far better rewarded, genetically speaking, in males than in females.
 
  What next?
 
  There will be massive practical implications for insurers, who will now need to assess each individual’s life expectancy (or make a risk assessment as to other types of risk such as car insurance) instead of making the assumption that, for example, a female member of a scheme is statistically likely to live longer. While the result might be more accurate, it will involve a greater administrative burden.
 
  The consequences will be massive and will affect all parts of the pensions and insurance industries. There will be wider legal consequences, such as a need for the Government to redraft the new Equality Act.
 
  Ultimately, this change is likely to drive up the cost of retirement for the average man and car insurance for the average woman. But the insurance industry will always find innovative ways to maintain a competitive edge. So men, you can still do your bit to maximise your retirement income by getting in touch with your feminine side: shop around and find the best deal!
 
  
    
  
  
   
    [1] In relation to the case of Association Belge des Consommateurs Test-Aschats and Others (Case C-236/09)
  
  
   
    [2] Actuarial Profession press release 7 October 2010
  
  
   
    [3] (Based on the FSA’s Comparative Tables as at 07/01/2011 – single life pension annuities with RPI increases for non-smokers.)
  
  
   
    [4] UK population data, 1980 – 2006, based on age 65 life expectancy
  
  
   
    [5] Society of Actuaries, Blatt Klaben monograph 2002: Why men die younger: causes of mortality differences by sex
  
  
   
    [6] Thomas Kirkwood, 21 October 2010
  
  
   
    [7] National Geographic, 2003
  
 

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