- Regulatory Body Identifies Numerous Life Insurance Policies as Overpriced
The German Financial Supervisory Authority (Bafin) has given a heads-up to local life insurance companies regarding the excessive costs in their offerings. According to Bafin's Executive Director, Julia Wiens, "Life insurance policies ought to cater to the insurance requirements and profit expectations of their clients. Regrettably, this isn't always the case." Several firms require immediate improvements, she added.
Bafin is specifically alerted about the distribution and height of effective costs. These figures show how much the annual yield is eroded by expenses. At the point when half of the policyholders had prematurely canceled their agreements, these expenses amounted to 4% or more in various companies' products. As per Wiens, "The firms would thus have to yield at least the same amount through the corresponding capital investments for their clients to gain benefits."
Exorbitant costs and observable surrender rates
Some life insurance policies have also garnered attention due to their extremely high surrender rates, particularly during the first years following the agreement's signing, when a significant portion of the expenses is incurred. A high early surrender rate might suggest that the products were marketed outside their intended market segment.
In May 2023, Bafin outlined in a letter their expectations from providers of investment-linked life insurance policies. Concurrently, they surveyed products available on the market. Since then, Bafin has audited 13 life insurance companies. "What we've discovered thus far falls short of our expectations," criticized Wiens at an 'Handelsblatt' event.
If Bafin identifies misconduct, they will intervene. The authority can, for instance, prohibit the distribution of products or impose sanctions against board members if their professional competence is under question, stated Wiens.
The Commission, as outlined in the Regulation, will adopt implementing acts to establish the rules for its application. These acts are necessary to ensure compliance with the regulations set by Bafin regarding excessive costs in life insurance offerings.
In light of the high expenses and observable surrender rates in certain life insurance policies, it becomes crucial for the firms to generate at least the same amount in returns through corresponding capital investments for policyholders to gain benefits, as per Wiens' statement.
