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In the world of life insurance, a notable change is underway as guarantee products are expected to see a decline in offered guarantees. This is evident in the recent move by companies like Allianz, reducing guarantees. However, some insurers, such as Canada Life, are maintaining exceptions, with products like their Unitised-With-Profits fund still offering some form of guarantee.
Over the next 10 to 15 years, insurers are likely to move away from offering high or full guarantees due to several factors. These include low interest rates, increased capital costs, and evolving risk management practices. Instead, insurers are favouring more flexible or unit-linked products with fewer guarantees to reduce financial strain.
Canada Life's Unitised-With-Profits fund represents a niche market that balances participating feature benefits (bonuses linked to company profits) with some guarantee elements. This kind of product may appeal to consumers who want a middle ground between traditional guaranteed products and riskier unit-linked investments.
Consumer demand and regulatory changes will shape the market further. The demand for simpler, cost-effective life insurance, such as pure term products, is rising, which might divert interest from complex guaranteed products to lower-cost, less guaranteed alternatives. Regulatory moves may also enforce standardized simpler products or alter solvency regimes that make guarantees more expensive for insurers.
Digitalization and comparison tools also affect how life insurance products are marketed and sold. Life insurance purchases via price comparison websites have seen declining conversion rates compared to non-life products, possibly signaling consumer preference shifts that could affect guaranteed product sales dynamics.
Looking specifically at Allianz and Canada Life, the market trends indicate a cautious contraction or transformation in guarantees offered. Igor Radović, a representative from Canada Life, states that the 100-percent guarantee is an important anchor element in retirement provision for German customers. However, Canada Life's Unitised-With-Profits (UWP) fund guarantees customers not only 100 percent of their contributions at retirement, but also an average annual minimum value increase of 1 percent.
Radović explains that the guarantees in Canada Life's UWP fund do not restrict investment freedom, and they regularly review and adjust their guarantees as necessary. Canada Life, along with a few other insurers, wants to be an exception and stick to the full contribution guarantee.
Insurers like Allianz, R+V, and Ergo have reduced the guarantees for non-mandatory products by 60 to 90 percent, but are maintaining the 100-percent guarantee. Given the current interest rate environment, Igor Radović predicts that the guarantee level on the market will decrease.
In conclusion, guarantee products in life insurance will likely see a gradual shift toward lower or more conditional guarantees, with selective retention in certain products such as unitized with-profits funds by specific insurers. Market growth (in terms of product uptake) may be tempered by increased competition from pure risk products and aligned with evolving consumer preferences and regulatory frameworks.
- Despite some insurers, like Canada Life, maintaining exceptions with products like their Unitised-With-Profits fund offering guarantees, the insurance industry is likely to transition away from high or full guarantees in the next decade, opting for more flexible or unit-linked products with fewer guarantees due to factors such as low interest rates, increased capital costs, and evolving risk management practices.
- As consumer demand for simpler, cost-effective life insurance grows and regulatory changes push for standardized, less expensive products, as well as potentially alter solvency regimes that make guarantees more expensive for insurers, traditional guaranteed products may see a decline in favor of lower-cost, less guaranteed alternatives such as pure term products or digitalized comparison tools.
