Munich Despite low interest rates and ever weaker returns, Germans remained loyal to their preferred form of old-age provision for many years. But now savers’ love of life insurance is cooling.
For the industry association GDV, the biggest loser among the individual insurance lines was already clear by the middle of the year. “In times of crisis, long-term provision and protection tend to be postponed into the future,” said Jörg Asmussen, General Manager of the GDV recently.
The result: the GDV expects premium income in life insurance to grow by just 0.6 percent this year. At the beginning of the year, insurers had hoped for premium growth of one to two percent.
Six reasons mean that Germans are currently more reluctant to take out life insurance than they were at the beginning of the corona pandemic. Last year, Germans signed around 4.9 million new contracts, an increase of 4.5 percent compared to 2020.
Since prices have been rising sharply, Germans would theoretically have to increase spending on their old-age provision in order to later have the same level of prosperity as before the start of the inflationary phase. However, the opposite is the case: the scope for saving in old age is suddenly limited because people have to spend more money on food and housing.
“The additional expenses are at the expense of savings potential and thus old-age provision,” says Oliver Ehrentraut, study director at Prognos. The research institute is majority-owned by the Georg von Holtzbrinck publishing group, which also owns the Handelsblatt.
The results of a current Prognos study on old-age provision, which was commissioned by the GDV, are particularly serious for the lower income brackets. Almost eleven million households 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. The proportion available for so-called “unnecessary expenses” is thus shrinking. They also include contributions to pension schemes.
2. The inflation gap
The gap between yields and inflation has been widening for months. The fact that the inflation rate in Germany fell surprisingly slightly to 7.6 percent in June does not change that. For life insurance, however, there was recently only a current interest rate of 2.02 percent on average.
Because interest rates are rising only slowly despite the European Central Bank’s announced change in monetary policy, the gap between yields and inflation will not close anytime soon. “Looking ahead to the next one to two years, given the high inflation a real value adjustment would hardly be possible,” admitted Andreas Lindner, chief investor at market leader Allianz Leben in April.
>> Read here: Statutory health insurance is becoming more expensive – when it’s worth switching to private health insurance
The huge interest rate gap deters especially those who are thinking about a new contract at the moment. The experts at the rating agency Assekurata have just published their forecast for the current year, in which they expect the premium portfolio to fall by one percent. This is all the more bitter for the industry, since after the decline of 1.7 percent in the Corona year 2021, it actually wanted to start again.
3. The turnaround in interest rates
On Thursday, the European Central Bank abolished negative interest rates by raising interest rates by half a percentage point. This means that savers suddenly have interest rates again, but the change in monetary policy in the euro area is still taking place more slowly than in the USA.
A guaranteed interest rate of 0.25 percent, as has been the case since this year for classic policies that are still on offer, can therefore no longer attract anyone. Reiner Will, Managing Director at Assekurata, now expects that competing banking products will increasingly compete with life insurance companies. This competition will become even tougher the higher interest rates rise.
In the past, consumer advocates such as the Federation of Insureds (BDV) have already described classic life insurance in drastic terms as “legal fraud”. Instead, they advised separating death insurance and old-age provision, i.e. taking out term life insurance that only guarantees protection for the surviving dependents in the event of death, plus a savings contract, for example based on inexpensive fund products.
>> Read also: “The turnaround in interest rates is a very good signal for life insurance,” says R+V boss Norbert Rollinger
4. Problem cases in the branch
A number of the approximately 80 providers of life insurance in Germany do not currently give a trustworthy impression. 15 of them are still under special surveillance by the German financial regulator Bafin. At least the number of problem cases has fallen somewhat after the previous 20.
Overall, the industry paints a very heterogeneous picture. Solid and financially strong companies face a number of less robust companies. The Mannheim professor Hermann Weinmann, for example, described the business assessment of Allianz Leben, LV von 1871, Hannoversche Leben and Hanse Merkur Leben as very strong, while he rated Bayern-Versicherung and Signal Iduna Leben as sufficient.
5. Distrust of liquidators
Another phenomenon is causing distrust among many insured persons: the outsourcing of policies to so-called processing companies. In June, the insurer Zurich reported the intended sale of an old portfolio to the processing specialist Viridium.
Just a few days ago, the competitor Axa Germany announced that it intends to sell 900,000 classic life and pension insurance contracts from the former DBV Winterthur to the liquidator Athora for EUR 660 million. With the sale, the French want to make their life insurance business less dependent on financial market risks. According to market rumors, other providers are having similar thoughts.
Britta Langenberg, insurance expert for the Finanzwende citizens’ movement, warns that insurers are “losing a lot of customer trust” with such sales. The consumer advocate argues that many companies in liquidation have by far the highest customer complaint rates with the financial regulator Bafin.
The industry association GDV, on the other hand, believes that the specialized processors can use synergies when several small portfolios are merged into one large portfolio. Bafin Executive Director Frank Grund assesses his authority’s previous experience with the disposal of stocks as good.
6. Not green enough
A study by the life insurer Swiss Life has just shown that generations Y (1980 to 1993) and Z (1994 to 2010) in particular attach particular importance to sustainable provision. The industry itself has been registering this trend for some time, but life insurers’ options for creating sustainable policies are limited.
Due to the long maturities of up to three decades, the regulators require a high degree of security when investing. Therefore, according to Assekurata calculations, 77 percent of investor money is still invested in fixed-income securities such as government bonds. But they are not considered sustainable per se. Bafin Executive Director Grund considers a ten percent share of sustainable investments in the portfolio to be realistic, in his view 20 percent would already be extremely high.
More: Zurich sells old German life stocks to Viridium – what this means for the market