Unveiling a magnificent new realm of product guarantees.
In a low-interest environment, the life insurance industry is facing significant changes, particularly regarding 100% guarantees. Here's a look at the impact of these low rates and the adjustments being made by major insurers.
## Economic Pressure and Premium Changes
The reduced investment returns caused by low interest rates are putting pressure on insurers to maintain their 100% guarantees. To remain profitable, some insurers may increase premiums or adjust product offerings. This could lead to fewer 100% guarantees being offered or more stringent conditions for such guarantees.
## Innovation in Product Offerings
In response to the low-interest environment, insurers are innovating by offering more flexible or variable products instead of traditional fixed guarantees. This could include variable life insurance policies or other investment-linked products.
## Changes by Major Insurers
Major insurers are shifting towards offering more variable or flexible guarantees to manage risk in a low-interest environment. This could mean fewer traditional whole life policies with fixed guarantees and more policies tied to market performance. Insurers may also emphasise participating policies, where dividends are paid based on the company's performance, and use reinsurance to manage risk associated with providing guarantees.
## Regional Variations
While the life insurance sector is facing challenges in low-interest environments, it is expected to remain resilient in the Asia-Pacific region. Insurers in this region are likely to adapt by managing risk through diversified investments and innovative product offerings.
## Current Developments
As of January 2021, the Alliance offers customers the option to choose between guarantees of 90%, 80%, and 60% for new contracts of the precautionary concepts Komfort Dynamik, Invest Flex, and Index Select. The Federal Ministry of Finance has reduced the maximum interest rate for new life insurance policies from 0.90% to 0.25% effective from 2022. In December 2020, R+V parted ways with the 100% guarantee, guaranteeing a maximum of 90% of the contributions paid in at retirement.
In this evolving landscape, it is essential for consumers to understand the implications of these changes and make informed decisions about their life insurance choices.
The finance sector, including the life insurance industry, is modifying its investment strategy due to the low-interest environment, leading some companies to adjust product offerings or increase premiums for 100% guarantees. In response, innovation in business is emerging with insurers creating more flexible or variable products instead of traditional fixed guarantees, such as variable life insurance policies or investment-linked products.
