The Fitch rating agency is expecting that the Central Bank will tighten regulation of the life insurance market, and, first of all, it will affect investment life insurance (ILI), as reports the agency. More heavy regulation of this segment is necessary to reduce the risks associated with the lack of informing of potential policyholders concerning the CSI parameters, in particular, regarding the policy's cash surrender value, investment earnings, credit risks, and lack of state insurance that is provided for bank deposits.
Often, bank branches employees offer ILI policies to customers under the guise of deposits and do not inform that investment income is not guaranteed to them, and early termination of the agreement can cost a significant portion of the invested funds. Banks are the main channel of life insurance policies sale; in 2017, 88% of premiums were collected through banks, according to the Fitch report.
Commission fees from insurance policies sale provide a significant share of the proceeds of banks. Last year, banks received a commission fees income in amount of 50.5 billion rubles from the insurers for life insurance policies sale, as noted from the Central Bank’s data.
In Western Europe, the law obliges insurers to inform customers about the terms and conditions of hybrid products, that is the ILI, and there are still no such requirements in Russia, says Anastasia Litvinova, Director of the Insurance Analytical Group in the Fitch. If such requirements are introduced at the legislative level in Russia, then the growth of the ILI market will significantly slow down, she is sure. In 2017, life insurance premiums increased by 53.7% up to 331.5 billion rubles, according to the Central Bank. The Fitch notes that the premiums under the ILI had doubled in 2016-2017 due to the interest of citizens in these products against the background of interest rates falling down on deposits.
Insurers, their agents and banks should pay more attention to informing customers about the products of the ILI, as said a representative of the Central Bank in response to the questions of the “Vedomosti”. He says that the requirements for information disclosing to the customers about the key parameters of the ILI and possible risks will be included into the basic standard for consumer protection. This standard is developed by the All-Russian Union of Insurers (ARUI) together with the Central Bank. In the nearest future, the first discussion of this document will take place, as reported a representative of the regulator. The “Vedomosti” expects comments from the ARUI representative.
How the ILI works
Investment Life Insurance (ILI) is a combination of classic risk insurance (risks of death, survival, accidents) and an investment product allowing obtaining additional non-guaranteed income, depending on dynamics of the underlying asset chosen by the customer. If the agreement is terminated early, it is not possible to get all insurance premiums paid. The redemption amount, as a rule, increases in proportion to the expired insurance period.
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