Insurers must stop setting prices based on gender, an EU court ruled, in a move that could raise costs for women drivers, cut male pensions, and prompt more legal challenges to insurance pricing practices.

Taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination, the European Court of Justice said on Tuesday.

The ECJ told insurers to adopt a unisex approach to setting premiums from December 21, 2012, confirming a recommendation from its senior adviser in September.

Insurers said the decision could push up motor insurance costs for women, who currently pay less than men because they are statistically less likely to be involved in accidents, by up to 25 percent.

The ruling could also reduce retirement annuity payments to men, who currently get more than women to take account of their lower average life expectancy. Annuities are insurance policies which offer a regular income for life in return for a lump sum, usually paid on retirement.

INDUSTRY ANGER

The ECJ's decision drew condemnation from the industry, which said differential pricing for men and women was legitimate given their different risk profiles.

Europe-wide the effect on the price and benefits and on the choice of insurance products for consumers could be significant, said the CEA, Europe's insurance industry lobby, which added it was deeply disappointed by the ruling.

Analysts said the decision would have little long-term impact on insurers' earnings as they had enough flexibility over pricing to ensure any changes would cancel each other out.

From the consumer perspective it is going to make a difference, but my sense is that the insurers will change their rating to maintain their current level of profitability, said Espirito Santo analyst Joy Ferneyhough.

The Stoxx 600 Europe insurance sector share index was flat at 1420 GMT, lagging the wider market, which was up 0.2 percent.

AGE NEXT ?

The gender ruling could pave the way for a potentially more damaging legal challenge to insurers' reliance on their customers' age in setting prices and payouts.

Of greater concern to the industry is the likelihood there will be further European challenges, particularly around age, said Mark Winlow, head of general insurance at accountants KPMG.

This is a more significant factor than gender, as age is used much more widely to differentiate risks.

Younger male drivers can pay as much as 2000 percent more for car insurance than they would if they were aged 50, Winlow said.

Sheila's Wheels, a British motor insurer that markets itself to women drivers, said its business would be largely unaffected as a low volume of claims from its mostly female customer base allowed it to maintain a low gender price gap.

We are protected by the sheer number of women on our books, which will not change overnight, a spokesman said.

The decision will not change our advertising or marketing or dilute our appeal to women.

Analysts said insurers were likely to look for ways of measuring customer risk more accurately, including pay-as-you-drive schemes which set car insurance prices by monitoring customers' driving habits through a black box fitted inside their vehicles.

(Additional reporting by Cecilia Valente and Sarah Mortimer in London; Editing by Andrew Callus and Greg Mahlich)