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Often too expensive for a good return:
Life insurers see the future in the fund policy, but now the Bafin is reporting doubts
Photo: Uwe Zucchi / picture alliance / dpa
manager magazin: Mr. Weinmann, the Bafin has examined the costs of unit-linked life insurance and found them to be too expensive. The high costs of these products have been the subject of criticism for a long time, but you consider the result of the study to be "awesome". Why?
Hermann Weinmann:
That starts with the title of the study: "When life insurance costs too much".
Many goods and services cost a lot.
In particular, luxury is one of them.
But "too much" has a different value and is an indication of a grievance.
The choice of words seems deliberate and is a clear declaration of war on the industry.
So far, the financial supervisory authority has not exactly been considered a proven critic of insurers. Do you now see damage to the image of the product?
Anyone outside of the professional world who is already dealing intensively with statements by the Bafin could now answer unmoved.
And with a view to the image damage, it occurs to me ad hoc: Once the reputation is ruined, life is unabashed.
What are you trying to say?
There are many allegations against life insurance, but looking at how the business has evolved over time, we cannot see that these are significantly affecting business and customers are turning away.
And that may also be the reason why dubious practices such as excessive costs are resorted to.
However, some industry representatives and the lobby seem to overlook one point or do not want to admit it: Business success could be significantly greater if image and reputation in the public were brought up to a level in the future, as is appropriate for a systemically important provider of products of general interest heard.
What is the main difference between unit-linked and classic life insurance?
In both cases, it is a tax-privileged investment packaged in an insurance cover that also covers or can cover risks such as death.
The difference lies in the organization of the savings and dissavings business, which is then reflected in the capital investments.
Classic life insurance is based on insurer guarantees and invests the savings contributions on one's own responsibility, usually with comparatively little risk due to the guarantee
obligations
.
The management of the pension payment, which leads to dissaving, also remains within the company.
And the unit-linked variant?
Pure unit-linked life insurance usually transfers the savings business to external capital management companies that set up investment funds.
This entails more risks for the insured, but also the chance of greater returns.
The associated savings business, i.e. the annuitization of the contract, remains with the life insurance.
And that is why the capital investment of the life insurer is of great importance for fund policies.
Mixed forms with investment funds and capital investments by insurers are possible.
The Bafin has queried the effective costs of the best-selling fund policies. They indicate how much the costs reduce the annual return on the product. Average weighted costs of between 1.1 and 2.7 percent per year do not sound dramatic to the layperson. When is a policy expensive or too expensive for you?
What the study shows: The shorter the savings phase, the higher the cost burden of a contract and thus the so-called effective costs.
Whether a policy is expensive or too expensive is shown better by the reported absolute euro amounts, which must also be disclosed to the customer according to the Information Ordinance.
It should also be noted that the effective costs queried are based on a calculation.
However, the actually realized costs are decisive for later success.
And if, year after year, up to twenty-five percent of the insured's premiums are incurred for costs across all products, as is the case with some life insurers, then that's worth discussing.
When designing a product, insurers are obliged to pay attention to an appropriate price-performance ratio before it is released - high effective costs are harmful. How well do insurers meet this obligation?
You can't lump all life insurers together.
However, some knowingly violate this duty.
Who monitors these so-called conduct of business obligations and how well does this happen?
You have to ask the Bafin, because they are responsible for this.
However, I expect that after this investigation, the insurance supervisory authority will demand these obligations more vigorously.
In a recent interview
, a Bafin spokesman said that with an effective cost of 4 percent, there were "serious doubts" as to whether the price-performance ratio was still appropriate.
Does that mean that the Bafin sees the grievance you initially formulated, but cannot do anything about it?
4 percent effective costs are of course hefty, because the policy funds first have to generate this return so that the insured can even achieve an investment profit.
We shouldn't forget that the golden years of investing in shares with the support of central banks are probably behind us.
But to your question: The Bafin apparently does not have the means to prevent such excesses in terms of costs.
I would remind you that in the last legislative period, the BaFin submitted a proposal for capping the acquisition costs.
However, politicians could not bring themselves to do so.
If you keep this failure and the failure of the Riester reform in mind, then you can lose faith.
What role do so-called reimbursements or kickbacks play in terms of costs?
Kickbacks are reimbursements from the fund companies and are proof that the fund fees, which the customer helps finance with his premium, could be lower.
With the profit participation, part of the reimbursements can be reimbursed to the insured; on average, the insurers credit about half of these kickbacks to the customers.
According to the Bafin investigation, these remunerations are not insignificant, which I expected.
A significant part of the kickbacks does not flow back to the customer.
Yes, but what snapped me out of my dream of impeccable life insurance is the fact that, according to Bafin, one-fifth of these kickbacks end up directly with the intermediaries and in many cases the life insurer does not know the specific amount.
That's a bang too.
Because the fear is obvious that intermediaries will then recommend the funds with the highest reimbursements to their customers, which increases the costs and reduces the return on a fund policy.
Are actual costs and mandatory information sheets sufficient for the customer to be able to compare different fund policies in a meaningful way?
No, I do not think so.
The concept of responsible citizens, who only need to be sufficiently informed, has failed.
Ask the customers who recently completed what they read and understood about it.
Ask about the terminology of insurance-based investment products and actual costs.
Also ask the intermediary about the regulation for these products, about the product information sheets and the basic information sheets.
Even experienced intermediaries might have trouble penetrating this jungle.
The sad realization is that information kills understanding.
Against this background, what are your demands on the financial regulator and the product providers?
The product providers in the insurance industry are concerned with their own interests and their sales volume and have no interest in limiting costs.
Many also have to pay high commissions to intermediaries in order to save their new business.
The chimera information obligation must be replaced by a new, simpler regulation that starts with the products and a fair calculation of the policies.
The actuaries used to be the "arithmetic servants".
Today they see themselves as masters of the balance sheet who not only calculate the obligations of insurers but also see themselves as masters of capital investment.
Some of them are meanwhile "comfort calculators" for me, who submit to a dubious business policy.
Only commitment helps, and this is not the responsibility of the Bafin, but of politics.
How does a consumer recognize a good fund policy? Or should he better separate risk management and investments, as consumer advocates advise?
Recognizing doesn't help.
In contrast to classic life insurance, the consumer has to do something and should actively take care of it.
This begins with the selection of the fund upon completion and continues with constant monitoring, which can then also lead to an exchange of funds.
The essential investor information, which is mandatory when buying investment funds, is a great help.
The costs are also an issue, and in addition to the annual effective costs, particular attention should also be paid to them
apply to the euro amounts.
I think it makes sense to link risk management and financial investments or retirement provision.
State funding is only available together.
Without mandatory earmarking, consumption would devour many pension plans.
Taking care actively sounds good, but hardly reflects reality. Wouldn't it also be the job of the intermediary or insurer to approach customers if the capital market situation were fundamentally different?
In fact, I see the mediator as having a duty.
A fund selection with less specialization and thus with less need for adjustment in the event of capital market shifts is ideal here.
Even after the conclusion of the contract, the intermediary should support its customers with regular monitoring of their systems.
Of course, that requires more effort - so I think it makes sense to replace the acquisition fee with an ongoing service fee.
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