Various life insurance providers in Germany need to enhance their offerings for policyholders.
According to Germany's financial watchdog, BaFin, several life insurance providers need to step up their game when it comes to benefiting the customer. BaFin's Executive Director Julia Wiens stated this during a gathering in Bonn on Tuesday, expressing her disappointment that this basic principle often isn't followed. She highlighted that despite life insurance being supposed to cater to customers' insurance needs and return expectations, many companies fall short.
Last year, BaFin released a guide detailing their expectations for insurers. Following this, they analyzed the costs, commission fees, and surrender rates of various insurance products. Twelve companies, specifically, were singled out and are currently undergoing a "behavioral supervision examination."
BaFin pointed out that the focus was on effective costs. These represent the annual return decrease due to costs. BaFin noted that for some company's products, the effective cost burden was as high as 4% or more at the time. This means the companies needed to generate a return of equal magnitude with the necessary capital investments in order for the customers to benefit.
Wiens elaborated that if effective costs are as high as mentioned, insurers ought to examine whether the return target is achieved with a substantial probability for the customers who opt out of their policies starting from that time onward. Only then can one talk about "adequate customer benefit."
In response to BaFin's findings, several German life insurance providers are required to reevaluate their strategies to better serve their customers. These companies have been identified as needlessly incurring high effective costs, which negatively impact the customer's returns.
