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Deposits are not in trend today. And why we should buy investment insurance policies

Investment life insurance can become a real alternative to bank deposits, despite the level of profitability for policies in 2012
Deposits are not in trend today. And why we should buy investment insurance policies

The market of trust management is experiencing renaissance. According to the National League of Management Companies (NLMC), the assets of open-ended mutual funds (OEMF) in 2017 increased from 130 billion to 215 billion rubles. The situation on investment life insurance (ILI) is even better: according to the Sberbank Life Insurance analytical center, the Russian citizens have invested 210-215 billion rubles in this instrument last year. In total, about 600 billion rubles have been invested in the ILI. This is a very high indicator for the market, which began to form only 7 years ago.

Demand for investment

What is the reason for such a sharp increase in the popularity of alternative tools, and especially investment insurance? The situation is developing this way due to a combination of several factors. The first and most important is the reduction in deposit rates. In just a couple of years, interest on deposits fell from double-digit rates to 6% per annum and lower.

This trend will certainly continue: soon we will see the rates at the level of inflation, around 3-4% annually. This is absolutely normal for the financial market of a developed country, as the deposits in Europe are not an income tool. That is the alternative investments are for. When this happens, people who have relatively small savings, around 300 000 - 500 000 ruble, will pay attention to the ILI.

Besides, almost all customers are aware of tax deduction, and banks and insurance companies have learned to help the client in its processing, filling out all the necessary papers for them. The holdback can make up to 15 600 rubles from the monthly installment when buying an ILI policy. This is an additional incentive for those who think about investing in this tool.

The banks are also interested in selling the ILI and combined products that generate commission income.

What the market has learned

According to our forecasts, in the coming years the ILI market will grow by about 40-50% per year, and by 2020 it will exceed 1 trillion rubles. Even the negative publicity developed around this tool, will not be able to hurt its growth. Let us remind you that several hundred investors who were the first to buy this product in 2011-2012, received a close to zero profitability in five years from purchasing, although they managed to return all invested funds.

This happened because back then the money was invested primarily in the futures for the Russian Trading System index and gold. After two crises these assets lost about 30-40% of their value. The probability of reoccurrence of such an event is extremely low, since insurers competently diversify their investments by putting the funds in almost all classes of assets, from the US consumer market to the shares of large German companies.

It has become possible relatively recently, in 2013, when cooperation agreements with leading international investment banks were concluded. In partnership with them, insurers have the opportunity to offer derivative strategies that fit every taste. So, even with an unfavorable scenario, customers are likely to no longer remain with zero profitability.

Another obstacle may become obscurity of this product to mass customers. Indeed, citizens are just beginning to get used to financial planning and working with mobile banks. It may be difficult for some people to ILI in a convenient and understandable form.

What will the ILI be like

Now the market participants offer more than 10 investment strategies with different risk vs yield ratios, most of which showed an annual yield of 6 to 37.5% in 2017. Naturally, for people who are not familiar with the structure of the international stock market, it is necessary to develop intuitively clear products that can be formalized both in a bank branch and through a mobile application.

Such products should allow us to receive a regular coupon income, which makes them similar to deposits. This income should be calculated by simple parameters. For example, if the quotes of the companies’ baskets on chosen strategy do not fall below a certain price by the end of the year, then the client receives a 10% investment income. If the quotes grow by more than 10% from the entry point, the client receives a coupon payment of up to 20%.

Thus, after several major falls and long years of stagnation, the market for alternative investments is entering the development phase. And this time the main driver in it will be the simple and easily perceived by the population investment-insurance products.


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