High inflation has consequences for property and casualty insurance. However, it will probably be a while before the turnaround in interest rates has a positive impact on life insurance.
According to industry experts, most life insurance customers cannot hope for rising interest rates on the classic old-age provision for the time being, despite the turnaround in interest rates on the capital market. At the same time, due to high inflation, consumers must be prepared for property and casualty insurance to become more expensive.
“I would not expect an increase in current interest on classic capital life insurance over the next three to five years,” said Herbert Schneidemann, CEO of the German Actuarial Association, to the dpa and dpa-AFX news agencies. A faster rise in interest rates is conceivable for life insurance policies where customers only pay a one-time contribution.
legacy contracts
In order to secure the high guarantees for old contracts of up to four percent, insurers had to set aside money during the interest rate slump. This money could not be distributed to customers. Because the interest rates on government bonds have recently risen, the capital buffer – in technical jargon the additional interest reserve – is now sufficiently filled on average. “The additional interest reserve is fully financed at around 100 billion euros at the end of 2021,” said Schneidemann. This means that many insurers no longer have to set aside any more money.
On the other hand, the interest rate turnaround creates so-called hidden burdens on the balance sheet. Schneidemann expects that many insurance companies will first reduce the hidden burdens according to the principle “the cautious pay first” before increasing the profit participation for their customers.
Profit Sharing
The surplus participation, which life insurers set every year depending on the economic situation and the success of their investment strategy, is part of the ongoing interest on the classic old-age provision. In addition, there is the guaranteed interest rate, which the Federal Ministry of Finance sets according to calculations by the Association of Actuaries and recommendations from the financial supervisory authority Bafin. This so-called maximum technical interest rate for new contracts that have been concluded since the beginning of the year is currently 0.25 percent. “I believe that it will be a few more years before the maximum technical interest rate rises again – as long as the interest rate level continues to stabilize,” said Schneidemann, who is CEO of the Bayerische insurance group.
The current interest from profit participation and guaranteed interest, which only refers to the savings portion after deduction of costs, is currently on average just over 2 percent, according to his information.
This insurance is getting more expensive
Property and casualty insurance is likely to become more expensive due to the sharp increase in inflation. For example, building insurance is affected by the extremely sharp increase in construction costs. “Personally, I assume that we will see faster and higher premium adjustments through cancellations of changes in non-compulsory insurance,” said the actuary, Schneidemann (actuary). For example, insurers could terminate homeowners insurance contracts and in this way enforce higher premiums on their customers.
In motor vehicle insurance, “a further aggravating factor is that, in addition to inflation, hail events are increasing so rapidly,” said Schneidemann. This is why comprehensive insurance policies in particular are likely to become more expensive for customers. In contrast to life insurance, the motor
Liability and private health insurance companies can cancel insurance policies that are not mandatory, such as household or building insurance. (dpa)