A life insurer has once again decided to sell its classic policies with a guaranteed interest rate to an external processor: After the Italian insurer Generali had transferred around 4.2 million contracts to the specialist Viridium in 2019, the Swiss insurer Zurich is now parting with 720,000 traditional contracts its German subsidiary Zurich Deutscher Herold. The buyer is also Viridium. Both companies assert that nothing should change for customers.
Many life insurers would like to get rid of the classic policies in their books. In the past, they promised customers high interest rates, sometimes four percent, but they earn significantly less on the capital market. You have to hold a lot of additional capital to cover these promises of interest.
In new business, most providers have long since said goodbye to these contracts. They rely on fund policies, where the customer bears the risk of falling prices, and on contracts with slimmed-down guarantees. This is also the case with Zurich, which claims to be the second-largest provider of fund policies in Germany. The currently rising interest rates are not changing that, emphasizes Zurich Germany boss Carsten Schildknecht. “We do not expect a revival of the attractiveness of traditional life insurance in the short term,” he said. “There is no way around unit-linked policies, they offer the best protection against inflation.”
In addition, Zurich can get rid of legacy IT burdens through the deal with Viridium. The traditional contracts run on a total of three outdated IT systems, which the insurer would have had to laboriously migrate to its current life system. Viridium takes care of that now. The migration of the policies to the processor’s system will take around three years – and will be expensive. The move of the Generali contracts had cost around 250 million euros.
Nothing should change for the customers. “Policyholders can rest assured that we are fully focused on fulfilling their contracts over the long term and that they will benefit from the financial and operational advantages of our business model,” said Viridium CEO Tilo Dresig. Processors promise more efficient management of contracts.
Consumer advocates are skeptical. They fear that customers will be treated worse – and their profit sharing will decrease. Viridium emphasizes that at the takeover of Generali Leben, which is now called Proxalto, the surpluses on a three-year average before and after the acquisition increased by 71 percent.
However, last year Proxalto had the highest rate of customer complaints of all German life insurers. The company speaks of a “temporary, unfortunately unavoidable effect” that was mainly due to the huge project of transferring Generali data. In the coming year, the numbers will normalize again, promises Viridium boss Dresig.