According to the latest amendments to the laws on insurance, life insurance companies can offer investment insurance to customers; this is a policy and an investment with a long-term timeframe.
“The idea is simple: if capital gains in life insurance contracts are not taxed let us create an investment tool that will legally be a life insurance policy but will work both as a protection and an investment tool. This type of insurance is called Unit-Linked abroad”, said Vitaly Lyubimov, the Managing Director of Halyk-Life JSC.
In the USA, up to 60% of life insurance contracts are concluded using Unit-Link technology. In Europe, this segment accounts for between 30% and 70% of all money. In Russia, for 9 months of last year, the growth of this market was 40.7%.
“The first advantage is a standard insurance coverage. From the very first day of investing under the Unit-Linked program, the client gets full insurance for the full coverage amount. Upon the insurance expiry, the client receives the entire accumulated amount plus interest,” said Askar Shakenov, the Deputy Chairman of the Board of Nomad Life Insurance Company.
On average, the profitability of classic insurance savings programs allows customers to count on only 5-6% per annum, which is significantly lower than the inflation rate and yield on bank deposits, although comparable to the most conservative bond funds. “I believe, we can offer an income of 13% per annum. A part of the accumulated amount is invested in investment instruments that can bring the owner income far exceeding the possibilities of insurance programs and bank deposits. Basically, these are mutual investment funds,” commented the Deputy Chairman of the Board of Nomad Life LIC.
The fundamental difference between Unit-Linked and endowment is that the investment risk is transferred to the client. “First of all, reputation is very highly valued in Kazakhstan, and insurance companies simply will not allow a default on some portfolio. Secondly, a life insurance company concludes several contracts: with a custodian bank, a contract with the management company and it also coordinates an investment declaration. The decisions are made on different levels and the error probability is extremely low,” says the Managing Director of Halyk-Life JSC.
Financiers expect that the distribution of shares of conservative and aggressive instruments in Unit-Linked will change in favor of the latter, since the insurer will not need to guarantee a return of 100% of the investment by the end of the contract. “I think the equity-linked policies with investment component will be distributed approximately as follows: 1 thousand tenge out of 10 will go to classical insurance, and 9 thousand will be invested. Investments will be carried out through mutual funds. It will be possible to buy a wide range of tools, since the insurance companies themselves are limited in investing,” says Lyubimov.
Also, insurers expect that the investor will be given the opportunity to more actively participate in the portfolio formation. People will be able to choose between an aggressive and conservative investment strategies.