Unit-Linked is an investment product with insurance coverage, which is an analogue of investment management, in which the policyholder bears the investment risks by independently choosing an investment strategy.
In other words, it is a product similar to asset management, but with insurance coverage. Each insurance premium paid by the insured consists of two parts:
- One part is directly related to insured risks (i.e. property of insurance company);
- Another is a funded or investment component invested in instruments of the stock and other financial markets (property of the policyholder).
“Considering that the investment component of the insured is his property, such assets should be exempted from arrest and foreclosure on the debts of the insurance organization and should not be included in the liquidation bankruptcy estate. In order to exclude unfair actions of insurance organizations with respect to the insured's assets and provide an adequate system for assessing such assets, the Draft Law “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on the Regulation and Development of the Insurance Market and the Securities Market” the body of competence for the approval of a unified methodology and procedure for assessing the assets of policyholders,” the ARDFM press service informed.
At the legislative level, it is proposed to resolve the issue of unconditional termination of the license to carry out investment portfolio management activities issued to an insurance company in the event of termination of the main license of an insurance company for the right to carry out insurance activities in the life insurance industry. “The above measures are aimed at protecting the rights and property interests of policyholders, as well as eliminating the risks of unfair management of their assets, which is one of the main factors that contribute to increasing the interest and confidence of the client in this financial product,” according to the Financial Supervisory Authority.
Currently, only one insurance company, Nomad Life, has the right to independently manage the policyholders’ assets within the Unit-Linked product, that is, it has a license of a professional participant in the securities market. The remaining eight LICs may enter the market through the transfer of the insured's assets for investment management to professional participants in the securities market.
“In our opinion, the following criteria are the main factors influencing the insurer's decision to launch a conceptually new product like Unit-Linked:
First: the need to comply with the legislative requirements on the securities market, since Unit-Linked provides LICs with the opportunity to independently manage clients' assets if the LIC has an appropriate license of a professional participant in the securities market;
Second: prudential loads. A new type of business, such as attracting, keeping the insured’s assets (apart from their own assets) and their investment management activities, purchasing appropriate software products, etc., primarily puts pressure on the insurer’s own capital;
Third: the narrow focus of some LICs’ activities. Many local insurance organizations are created either as part of a banking group to insure the group's risks, or as an institution which activities are aimed exclusively at insuring the risks of partners,” ARDFM explained.
Experts and the regulator’s representatives believe that investment life insurance is a product of financially literate investors. However, Unit-Linked may also be of interest to those who are looking for more profitability than endowment insurance can offer, but are not ready to independently engage in active exchange operations. Do not forget about world experience. In some countries, investment programs of insurers are the basis for the formation of people’s personal pension savings, which is supported by state tax preferences.
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