European judges rewrote the rule book for insurance companies today by banning risk assessment based on gender.

Using differences between men and women as a risk factor in setting premiums for car and medical insurance and pension schemes breaches EU rules on equality, declared the European Court of Justice in Luxembourg.

The verdict – which applies from December 21, 2012 – will force changes in the current standard practice across Europe of basing insurance rates on statistics about differing life expectancies or road accident records of the sexes.

It was immediately condemned as “utter madness” and a “setback for common sense” by Conservative MEP Sajjad Karim.

The Association of British Insurers estimates that the decision will actually reinforce price discrimination, with women drivers under 26 in Ireland facing a 25% rise in car insurance rates, with a 10% drop in rates for fall for men.

Until now, discrimination in setting insurance rates has been explicitly permitted under EU equal treatment rules, “if sex is a determining risk factor... substantiated by relevant and accurate actuarial and statistical data”.

But today the judges followed advice from the court’s Advocate-General that “higher-ranking” equality provisions set out in the Charter of Fundamental Rights of the Lisbon Treaty must now apply.

Insurance companies can carry on discriminating between the sexes until December next year – the time when current EU equality rules are due to be reviewed.

The delay will also give insurance companies and risk assessors time to change the template for risk assessment by ignoring traditional statistical gender-based evidence.