Life insurance is popular with German savers. But the German financial regulator is taking a hard line on some providers. It criticizes high costs in particular – and threatens consequences.
The financial regulator Bafin is warning German life insurers about the high costs of their products, among other things. “Life insurance should meet the customers’ security needs and return expectations. That sounds like a given, but unfortunately it is not,” criticized Bafin Executive Director Julia Wiens. Several insurers urgently need to improve their policies.
Bafin is particularly concerned with sales and the level of effective costs. These indicate how much the annual return is reduced by the costs. For the products of several companies, they amounted to four percent or more at the time when half of the insured people had terminated their contracts early. “The companies would therefore have to generate a return of at least the same amount with the associated capital investments so that the customers benefit from it.”
High costs, conspicuous cancellation rates
Some life insurance products also attracted attention with very high cancellation rates – especially in the first few years after the contract is signed, when a large proportion of the costs are incurred. A high early cancellation rate could be an indication that the products were sold outside of their intended target market.
In May 2023, Bafin had set out in a letter on capital-forming life insurance products what it expected from providers. At the same time, it had analyzed products on the market. Bafin has now examined 13 life insurers. “What we have found out so far does not meet our expectations,” criticized Wiens at an event organized by the “Handelsblatt”.
If Bafin identifies any irregularities, it will intervene. The authority could, for example, prohibit the sale of products or impose measures on board members if their professional suitability is in question, Wiens said.
Source: Stern
