Urgent need for action in life insurance – economy

The new federal government has to deal with private old-age provision. The SPD, the Greens and the FDP have plans for a state-organized share savings scheme that will get by with low costs and thus supplement the statutory pension at a reasonable price. That would be a huge project with many imponderables.

At the same time, however, a future government must also deal with what is already there in terms of private provision: This is primarily life insurance. Better regulation of the distribution channels and the high costs is urgently required here. At first glance, life insurance is a gigantic success. There are currently 86 million contracts for every 83 million inhabitants. Statistically, every adult has 1.2 life insurance policies.

They are used to secure mortgages for building a house or, like families, against the consequences of a death. Above all, however, life insurance is the Germans’ favorite savings product. Customers pay a full 103 billion euros annually as contributions, 84 billion euros come back as services.

So everything is fine? Not at all. In reality, insurers have significant problems. They suffer from the low interest rates and the high guarantees they gave in previous decades and which are still working. And they suffer from an anachronistic sales system that often leads to incorrect advice.

The commission can be five percent and more

Life insurance policies are mainly sold by agents, brokers, sales organizations such as DVAG or MLP, as well as banks and savings banks. One thing is of particular interest to them: the commission. When taking out life insurance, customers usually undertake to pay premiums for many years. The commission can amount to five percent or more of the total amount. Several thousand euros are due for a single policy – which the customer pays with his premiums because the commission is posted to his contract.

In 2020, German life insurers paid 7.5 billion euros in acquisition costs, most of which are commissions. This is the official number, but there are also large sums of money flowing in as IT grants or processing cost reimbursements. In addition, there were administrative costs of two billion euros.

The Greens are calling for the abolition of commission advice for small investors. You want to strengthen advice against hourly fees. You are in good company: The Netherlands, most of the Nordic countries and the UK have banned pension commissions altogether. In the SPD there is support for a limit on commissions, a so-called cap. In the last legislative period, such a project by Finance Minister Olaf Scholz failed due to resistance from the Union.

Only the FDP wants to stick to the current system. It’s strange. Because it has hardly anything to do with a market economy and free choice for consumers when a well-trained broker meets a customer who is inexperienced in insurance matters and who then makes a decision for his entire life.

The traffic light parties will find a compromise. It is unlikely that everything will stay as it is. But it is also unlikely that commissions will be abolished altogether. It all boils down to a cap on payments. In doing so, the future government would also be doing a number of insurance chiefs a huge favor, by the way. For some time now, they have been feeling blackmailed by the large distributors as well as by banks and savings banks into paying ever higher commissions at the expense of customers. Of course, they would never admit it in public.

Limiting the commissions alone is not enough. A future government must also give the financial regulator Bafin the legal and financial means to better control the industry and its distribution channels. And it must abolish the absurd rule that insurance intermediaries are supervised by the local chambers of industry and commerce, in practice not at all. The supervision of the sales belongs to the Bafin.

.
source site