Enhanced digitalization and advice on private retirement provision

Balkan InsurTech Conference – 11 May 2021

This text is a shortened version of  the original speech

Ladies and Gentlemen, dear audience!

The subject for my presentation … is „enhanced digitalization and advice on private retirement provision“. The reason why I proposed this subject is quite simple. As we all know, there are two major impacts of the ongoing pandemic for insurers in Europe and even world-wide:

  • Due to the measures of social distanciation there is an enhanced digitalization as well of distribution procedures, as of contract administration and even of claims or indemnity management.

  • Due to the economic impacts of the pandemic there is an prolonged phase of low or even zero interest rates which puts an enhanced pressure on the returns of life-insurance products.

Under these contradictory conditions, what are the chances for a take-off of insurtechs in the sector of life-insurances?

Before answering to this question I would like to clarify a possible mis-understanding. As far as I know, in contrast to most Balkan states, in the traditional markets of private insurances in Central and Western Europe the sector of life-insurances is much more important than the sector of car or motor insurances.

  • Following to Insurance Europe (Federation of European Insurers in Brussels), in 2019 the average spent per capita in Europe for motor insurance was 244€, but for life-insurance 1163€.

  • So life premiums in Europe in 2019 were in total at about 700 bn €, premiums for motor insurances were only at about 147 bn Euro (nearly five times less).

These figures show why, in the long run, life-insurances are much more important with regard to the Gross Written Premiums than motor insurances. But as an independent broker or insurtech you should not forget that life-insurances are of course not the only product for private retirement provision.

As a consumer organisation, we always advocate that private retirement provision is predominantly a long-term saving process and less an insurance problem. That is why the saving or accumulation process should be kept as simple and cost-efficient as possible, e.g. by using a standard saving plan of ETFs ("Exchange Traded Funds"). The only so-called biometric risk which is linked to retirement provision is longevity, this means the life-expectancy after having finished the professional life. In Germany e.g the regular beginning of the state pensions starts at the age of 67. So, you have to calculate an additional life-expectancy of 25 to 30 years in order to be sure that your probable life-expectancy does not exceed your savings. For the payout phase there are various solutions: life-insurers offer life-long annuities, investments funds offer draw-down plans, both offer one-off payouts.

Any distributor, broker or insurtech has the legal obligation to give best advice on these various options as well for the contribution phase as for the payout phase following to the EU regulation of IDD – the Insurance Distribution Directive. In consequence a pension product which fulfills all these different requirements must be "simple, transparent and cost-efficient", as EIOPA stresses. Therefore on the European level, another new regulation has been adopted for the launch of the "Pan-European Pension Product" (so-called PEPP).

There are three major advantages of the PEPP:

  1. As an explicitly European product the saver will be enabled to contribute to the same product, even if later he will work in another country of the European Union ("portability service"). This may be interesting for workers from the Balkan countries for example, who would like to get a job in a different European state.

  2. There is an obligatory product standardization: any product provider has to offer a so-called "Basic-PEPP". If a saver chooses this Basic-PEPP, he just has to follow a pre-defined decision-tree as well for the contribution phase or for the payout phase, and he will know what will be the kind and the projected amount of the future pension. Because of this obligatory product standardization especially the Basic-PEPP is very convenient for pure online distribution.

  3. The Basic-PEPP has the additional advantage of a cap of costs of 1% of the accumulated savings per year. In comparison to most insurance pension products this cap of costs is moderate, but in comparison to pure ETF saving plans it still is quite expensive - especially in the long-term perspective.

As already pointed out, the first PEPP shall be offered to customers from 2022 on. Therefore it is very interesting to look for any pension products which already exist and which may be a model for a future PEPP. In Germany there are more than 50 life-insurers which offer all kind of life-insurances and pension products, from classical guarantees to unit-linked or hybrid products.

The biggest company is Allianz in Munich, as you may know, and they offer only for private pensions at least 12 products - not taking into consideration occupational pensions. … Surely you will find other possible candidates by making an online research on “Pension Plans” of other European product providers (like Standard Life in Ireland, Axa in France, etc.).
Unfortunately we can observe in a traditional insurance market like Germany that the established insurers and distributors more or less refuse to promote the new PEPP mainly due to the cap of costs. Therefore, for insurtechs there is the real chance to attract new customers by a new product and by an innovative way of online advice.

That is why I would like to give you one example of an insurtech which is focused on the future PEPP as major tool for private retirement provision: it is based in Berlin and its name is Vantik. Its website is bi-lingual (German and English), and there you will find all necessary information, how to give advice and to proceed contract conclusion exclusively on an online basis.

So my conclusions are the following:

  • Look at EIOPA's website for detailed information on the PEPP requirements.

  • Look at Vantik's website as an exemple for an insurtech spezialized on private retirement provision.

  • Remember that, of course, insurtechs are in a very harsh competition with traditional distributors in all financial sectors, private insurances and retail investments. But the enhanced digitalization creates several crucial advantages: broad range of target groups of possible customers, low costs by product standardization, better returns for customers by constantly offering ongoing product innovations.

Thank you for listening!

Über mich

Ich heiße Christian Gülich (Jg. 57) und war schon immer an Kontakten ins Ausland interessiert. Während meiner Zeit an der Universität Bielefeld (Fachbereich Soziologie) war ich zu Studien- und Forschungszwecken in Aix-en-Provence, Paris, Strasbourg und Brüssel. Da liegt es nahe, dass ich mich beim BdV hauptsächlich um die EU-Kontakte (Konferenzen, Stellungnahmen o.a.) kümmere. Hier im Blog möchte ich über diese Aktivitäten berichten. Denn leicht ist es, über die EU als Moloch zu lamentieren, viel schwieriger ist es, diese komplexen Zusammenhänge verständlich darzustellen.