Millions of Germans pay into life insurance in order to be able to benefit from the return in old age. But high costs and inflation often eat up hopes of a carefree old age. BAFIN is now paying special attention to the problem.
The financial regulator BAFIN wants to put a stop to excessive costs for life insurance. “High costs do not always mean an appropriately increased return,” said Germany’s top insurance supervisor, Frank Grund. “We have enough examples that there is no clear correlation between high costs and high returns.”
The interest on the classic old-age provision only refers to the savings portion after deducting acquisition and administration costs, among other things. In an investigation, the BAFIN found a “considerable spread” in particular in the distribution costs for life insurers. “We are now concentrating on the worst quarter in each case: we want to take a closer look at the 25 percent of companies with the highest total costs and the highest sales costs,” said Grund. “We are already very critically examining the cost structure of individual companies.”
On the basis of the investigation, the Financial Supervisory Authority has submitted a draft of a leaflet. Accordingly, old-age provision products should achieve a return after costs with “sufficient probability” that is above a long-term inflation expectation of 2 percent. “Consumers rightly expect a return that is higher after costs than long-term inflation,” said Dorothea Mohn from the Federal Association of Consumer Centers (VZBV).
A spokesman for the insurance association GDV said it would be good if BAFIN checked products for costs and incentives and if they wanted to deal with outliers. However, it is too short-sighted “to look exclusively and solely at the return on life and pension insurance”. They offer safeguards during the savings phase and, when you retire, the security of receiving a secure payment until the end of your life. “That is also a customer benefit.”
After evaluating the comments from companies and associations on the leaflet, BAFIN intends to publish its specifications for cost structure, which it uses as a basis for its supervisory practice. “We expect companies to orientate themselves and act accordingly,” said Grund.
Consumer advocates are also calling for a ban on acquisition commissions that insurance companies pay insurance agents and brokers for arranging life insurance. “Other countries such as the Netherlands or the United Kingdom have had good experiences with this, the quality of financial advice and the quality of the product have increased in both countries,” said Mohn, finance team leader at VZBV.
A commission ban in the European Union is currently being discussed in Brussels. Reason would find a corresponding ban for the German market “not good, that would only reflect it insufficiently. Good advice is important and must also be paid for accordingly,” said the insurance supervisor. “However, excesses must be avoided. That is our thrust.”
