Investment life insurance (ILI), the former leader in terms of fee velocity, has lost its role as a driver: fees for this type of insurance have dropped by 6%. Despite a rapid growth in mortgages, the fees on credit insurance have also decreased by 0.5%. The life insurance market reflects the general mood in the economy and society in the third quarter, said Viktor Dubrovin, the Vice-President of ARIA. “There are three main trends now: low deposit rates, high volatility in the investment and foreign exchange markets and a change in consumer behavior; the pandemic has demonstrated the need to have savings and additional insurance and medical protection,” he notes.
Alexey Yanin, the Managing Director for Insurance and Investment Ratings of the Expert RA agency, reminds that the outrunning endowment growth had emerged last year, and in 2020 this was most pronounced. However, the expert points out that when assessing the market trends, it is necessary to take into account the problem of terminology: companies decide for themselves what to call endowment and what - investment life insurance. “For example, there are already endowment life insurance plans with a single premium and a shorter period (3-5 years), which were previously considered as investment life insurance features. Classical endowment insurance is nevertheless distinguished by a long term and regular premiums, monthly or quarterly,” Yanin emphasizes.
Other experts confirm that there has been a tendency of sales substitution, when products are simply “repackaged” and re-named: from ILI to endowment. This process has got off after the harsh criticism of the ILI by the Bank of Russia (Central Bank), which has repeatedly declared its low profitability. At the forum "Leaders of the insurance market" on October 29 the Deputy Chairman of the Central Bank Vladimir Chistyukhin quoted figures of profitability as follows: on average for nine months under three-year contracts, it was 4.2% per annum, for five-year contracts - 3.1%. However, according to the Central Bank, 32% of policies showed zero return and only 17% of policies performed a profitability of over 5%. “In this case we can hardly talk about people’s satisfaction in such conditions and the value of this insurance product for the consumer,” said Chistyukhin and promised to continue thinking about what to do about it. The position of the Central Bank made life insurers refocus on endowment, hybrid products and the product value increase, in general.
Alexey Rudenko, CEO of Rosgosstrakh Zhizn, notes that today investment savings products contain built-in guarantees for clients, which are secured by instruments with fixed income (federal bonds, corporate bonds, bank deposits). Against the backdrop of low rates, more and more of the customers’ premiums go to guarantees and there are fewer opportunities for additional income and services. Apart from reduction of intermediary’s commission and the insurance company’s margin, another way to keep the product attractive is to increase the term of the products, since the same guarantee for a longer period is cheaper, the expert believes. Thus, the offer of seven-year ILI contracts with the option of early withdrawal received a good response from clients. The product has been launched in the spring and by the end of the third quarter it already makes up a quarter of the total sales structure. “A similar shift towards longer terms is taking place in endowment, - notes Rudenko. - More and more programs in the structure are now for 10 and more years.”
Photos are from open sources.