Munich Despite low interest rates and poor returns, Germans have remained loyal to their preferred form of aging care for many years. But savers’ love for life insurance is now starting to cool.
For industry association GDV, the biggest loser among individual lines of insurance was already clear by the middle of the year. “In times of crisis, the provision of protection and long-term protection tends to be deferred into the future,” Jörg Asmussen, Managing Director of GDV, said recently.
The result: GDV expects premium income in life insurance to grow by just 0.6 percent this year. At the beginning of the year, insurers were hoping premiums would grow by one to two percent.
Six reasons mean Germans are currently more reluctant to get life insurance than they were at the start of the coronavirus pandemic. Last year, Germans signed about 4.9 million new contracts, an increase of 4.5 percent compared to 2020.
Since prices have risen sharply, Germans will theoretically have to spend more on old-age pensions in order to subsequently have the same level of prosperity as before the start of the inflation phase. However, the opposite is true: the scope for saving in old age is suddenly limited because people have to spend more money on food and housing.
“The extra expenditures are at the expense of potential savings and therefore old age savings,” says Oliver Ehrentraut, study director at Prognos. The research institute is majority owned by Georg von Holtzbrink Publishing Group, which also owns Handelsblatt.
The results of the current Prognos study on saving in old age, which was commissioned by the GDV, are particularly dangerous for low-income groups. Almost 11 million families in Germany cannot save enough for old age. While consumer spending for all households has risen by 5.7 percent on average since April 2021, it is 7.8 percent in the lowest-income quarter of households. Thus the proportion available for the so-called “unnecessary expenditures” is reduced. It also includes contributions to pension systems.
2. Inflation gap
The gap between yields and inflation has widened for several months. The fact that Germany’s inflation rate fell surprisingly to 7.6% in June does not change that. For life insurance, there has only recently been an average current interest rate of 2.02 percent.
Because interest rates are only rising slowly despite the European Central Bank’s announcement of a change in monetary policy, the gap between yields and inflation is not going to close any time soon. “Looking forward to the next year or two, given the height inflation Andreas Lindner, chief investor in market leader Allianz Leben, acknowledged in April that a true value adjustment would not be possible.
>> Read here: Statutory health insurance is getting more expensive – when it’s worth switching to private health insurance
The massive interest rate gap is especially precarious for those considering a new contract right now. Experts at rating agency Assekurata have just published their forecasts for the current year, in which they expect the premium portfolio to decline by one percent. This is even more bitter for the industry, because after a 1.7 percent decline in Corona 2021, it already wanted to start over.
3. Shift in interest rates
On Thursday, the European Central Bank canceled negative interest rates by raising interest rates by half a percentage point. This means that savers are suddenly back to interest rates again, but the change in monetary policy in the eurozone is still happening more slowly than in the United States.
Thus, a guaranteed interest rate of 0.25 percent, as has been the case since this year for the classic policies still on offer, can no longer attract anyone. Rainer Weil, managing director at Assekurata, now expects increasingly competitive banking products to compete with life insurance companies. This competition will become more difficult as interest rates rise.
In the past, consumer advocates such as the Union of Insured Persons (BDV) have described classic life insurance in drastic terms as “legal fraud.” Instead, they advised a separation between death insurance and old-age pension, i.e. obtaining life insurance that only guarantees protection for surviving dependents in the event of death, as well as a savings contract, for example based on inexpensive fund products.
>> Read also: “The shift in interest rates is a very good signal for life insurance,” says R+V President Norbert Rollinger.
4. Problem cases in the branch
A number of about 80 life insurance companies in Germany do not make a reliable impression at the moment. 15 of them are still under special surveillance by German financial regulator Baffin. The number of problem cases has decreased at least somewhat after the previous twenty.
In general, the industry paints a very heterogeneous picture. Strong and financially strong companies face a number of less strong companies. For example, Professor Hermann Weinmann, Professor in Mannheim, described the business evaluation of Allianz Leben, LV von 1871, Hannoversche Leben and Hanse Merkur Leben as very strong, while rated the Bayern-Verschrunge and Signal Iduna Leben as adequate.
5. Lack of trust in liquidators
There is another phenomenon that causes mistrust among many insured people: outsourcing of policies to so-called processing companies. In June, the insurance company Zurich reported an intention to sell an old wallet to processing specialist Viridium.
Just a few days ago, rival Axa Germany announced that it intends to sell 900,000 classic life and retirement insurance contracts from former DBV Winterthur to liquidator Athora for €660 million. With the sale, the French want to make the life insurance business less dependent on financial market risks. According to market rumors, other providers have the same ideas.
Britta Langenberg, insurance expert at Citizens Movement Finanzwende, warns that insurers are “losing a lot of customer confidence” with such sales. Consumer attorneys argue that many companies in liquidation have the highest rates of customer complaints with financial regulator Bafin.
On the other hand, the industry association GDV believes that specialized processors can use synergies when many small wallets are combined into one large wallet. Frank Grund, Baffin’s CEO, rates his previous authority’s stock disposal experience as good.
6. Not green enough
A study by life insurer Swiss Life has just shown that generations Y (1980 to 1993) and Z (1994 to 2010) in particular attach particular importance to the provision of sustainable services. The industry itself has been recording this trend for some time, but life insurers’ options for creating sustainable policies are limited.
Because of the long maturities of up to three decades, regulators require a high degree of safety when investing. So, according to Assekurata’s calculations, 77 percent of investors’ money is still invested in fixed-income securities such as government bonds. But it is not considered sustainable per se. Grund, Baffin’s CEO, considers a ten percent share of sustainable investments in the portfolio realistic, in his opinion, 20 percent would already be too high.
more: Zurich sells German Old Life shares to Viridium – what this means for the market