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Über dieses Buch

This book examines the challenges for the life insurance sector in Europe arising from new technologies, socio-cultural and demographic trends, and the financial crisis. It presents theoretical and applied research in all areas related to life insurance products and markets, and explores future determinants of the insurance industry’s development by highlighting novel solutions in insurance supervision and trends in consumer protection. Drawing on their academic and practical expertise, the contributors identify problems relating to risk analysis and evaluation, demographic challenges, consumer protection, product distribution, mortality risk modeling, applications of life insurance in contemporary pension systems, financial stability and solvency of life insurers. They also examine the impact of population aging on life insurance markets and the role of digitalization. Lastly, based on an analysis of early experiences with the implementation of the Solvency II system, the book provides policy recommendations for the development of life insurance in Europe.



Market Picture and Development Challenges


Chapter 1. European Life Insurance Market: Analysis of Current Situation and Development Prospects

With the knowledge that we are living in dynamic time, the purpose of this introductory chapter is to depict a picture of the European life insurance market position and structure and to discuss its size, main features and most important factors, as well as the potential and development prospects. First, we consider the position of the Europe as a region against the backdrop of the world. Next, the main market measures based on the value of gross written premiums and paid benefits are examined in order to indicate new trends or to confirm existing trends. The importance of macroeconomic factors in the development of the European life insurance sector is also considered. Finally, the new risks and challenges for life insurance business are discussed, including the latest regulatory changes.
Marta Borda, Magdalena Chmielowiec-Lewczuk, Ilona Kwiecień

Chapter 2. Social Determinants of Life Insurance in the European Union

Life insurance is one of the substitute investments for social protection at the micro level for individuals and households. Like state social insurance, life insurance mitigates the social risks of aging, unemployment, reduced health, poverty and simultaneously saving for future well-being. Such social reasons and social surroundings and common economic factors affect life insurance. Demographic pressure with the aging of the population, the transformation of social protection and the influence of information and communication technologies impact the social determinants of life insurance. In this work, we assess the relationship between life insurance premiums and social indicators: demographic, labour and social protection in 24 countries of the European Union in 2007–2017. We found that the Gini index, health-care expenditures and average wages have the largest influence on life insurance. Other determinants, such as old dependency and life expectancy ratios, replacement of unemployment, population growth and self-employment, did not show a significant relation with life insurance. When analysing countries, we found a more precise picture: the selected social indicators have a significant impact on life insurance in the Netherlands, Greece and Italy and the smallest in Norway, France and Slovakia. The findings provide policy implications for the development of life insurance in the European Union, as well as for social policy and social insurance.
Natalia Grishchenko

Chapter 3. The Challenges Faced by Life Insurance Companies in the Baltic States

The Baltic life insurance market is a young steadily growing market. It began its development in the early 1990s when all three Baltic States, specifically Estonia, Latvia and Lithuania, have regained their independence. The Baltic life insurance market is limited due to a relatively small size with approximately six million inhabitants in all three countries. Additionally, the operations have deteriorated due to the low interest rates and the negative fluctuations in the financial market. The lessons learnt by the life insurers in the Baltic States are useful to other small countries in the European Union (EU) as well as to the larger States, to help bring to light the challenges of those members whose voice is not always heard, dampened by the larger States, so as to enhance the effectiveness of competitiveness, regulations and common policy within the EU.
With this study we aim to lay out the trends on life insurers in these Baltic States, considered as small EU States, over the period between 2014 and 2018, and to uncover the challenges that life insurers in these countries are currently facing. Our analysis is based on the examination of aggregate statistical data of the insurance sector provided by the financial market regulators of all three countries, Eurostat data as well as annual reports of the insurance companies.
The findings show that on average only 19% of the gross premium is related to the life insurance market. Moreover, the life insurance density figures are 20 times smaller when compared to the European average. In fact the analysis of the penetration rate indicates the ten times lower level of the life insurance premium to the GDP. Moreover, the life insurance companies in the Baltic States face a number of challenges related to the increased cost of compliance, necessity to operate in all three countries to ensure operational efficiency given the different levels of economic development in three Baltic States, low interest rates and therefore limited investment opportunities. The findings of this paper highlight the main trends and challenges in the development of life insurance market in the small European economies that is beneficial not only for other small European countries but also for the EU economic policy makers.
Ramona Rupeika-Apoga, Inna Romānova, Simon Grima

Chapter 4. The Turkish Life Insurance Market: An Evaluation of the Current Situation and Future Challenges

Turkey, with a population of 82 million, and despite being the world’s 18th largest economy is a country wherein insurance claims have not yet reached a sufficient level. In addition to local socio-economic problems stemming from international relations, this adversely affects the stability of the markets. The resulting problems also have a significant negative impact on life insurance.
The aim of this study was to determine the development trends of the life insurance sector between the periods 2008 and 2019 in Turkey. The analysis is based on insurance and other economic data collected from different institutions such as the Organisation for Economic Co-operation and Development (OECD) countries, World Bank and TurkStat, including insurance associations.
Insurance penetration in Turkey in 2018 averages 1.33%, that is, seven times lower than the average of OECD countries. On the other hand, the share of life insurance premiums in 2018 is 17.3% of the total insurance premiums collected, ranking second from the last of OECD countries in terms of premium.
The findings highlight the trends in the Turkish life insurance sector and reveal that house loans and social trust play a very important role in the collection of the current life insurance premiums.
Ercan Ozen, Simon Grima

Chapter 5. The Role Played by EIOPA in the Developments in the Insurance Sector European Consumer Protection Model

In the aftermath of the global financial crisis, financial consumer’s protection has become an important element of global regulatory debate.
European answer to consumer protection in insurance was predominantly located in the consumer’s protection agenda of Eiopa.
The paper is split into three parts. In the first part, we set the global framework. In the second part, we concentrate our attention on the analysis of consumer protection as a part of the global agenda. Finally, in the third part, we focus our attention on the role and performance of the European Insurance and Occupational Pensions Authority in the protection of consumers in the insurance sector.
Jan Monkiewicz, Marek Monkiewicz

Chapter 6. A New Model of Investment Life Insurance Distribution in the Context of Consumer Protection EU Policy

Offering investment-linked life insurance products and their actual sale is inseparably associated with particular trust in institutions in charge of the offer. Recently, there has been a significant decrease in the consumer confidence in the European insurance industry which contributed to a growing trend in consumer protection with respect to investment life insurance products.
The chapter presents issues related to the latest phenomena occurring in the European life insurance market that reinforced some corrective and preventive measures aimed at the clients of investment insurance products, such as unlawful business practices held by insurance companies, performing insufficient information policies and offering products with unclear structure.
The work elaborates on strategies performed in the course of preventive measure development along with the most significant legislation, including the aspects of product transparency, as well as the new sales policy model for life insurance products. The author also addresses the guidelines of the so-called IDD (Insurance Distribution Directive), whose aim is to further strengthen a customer’s advantage as the addressee of insurance services as resulting from intensive pro-consumer initiatives in Europe.
Moreover, there are opportunities for insurance distribution implementation presented in the chapter as based on the most recent legislation, recommendations, and consumer demand. These, in turn, are believed to increase the consumer protection and in the future hopefully to contribute to the development of the life insurance product market.
The purpose of the paper is to discuss the most important changes currently taking place in the European insurance market and to indicate the possibilities of improving the situation of consumers related to the quality of distribution of insurance-based investment products offered in it.
Anna Ostrowska-Dankiewicz

Chapter 7. Analysis of Capital Requirements in Life Insurance Sector Under Solvency II Regime: Evidence from Poland

The main aim of this chapter is to examine the first years of the implementation of Solvency II capital requirements driven by the standard formula. The analysis covers the Polish life insurance market. Since the introduction of Solvency II in Poland, the insurance market has been challenged to implement many of the recommendations as well as maintain an adequate level of capital. This chapter will present an analysis of the level of capital requirements, their evolution, the eligible own funds needed to cover them, and the decomposition of those requirements from 2016–2017 in Poland (since the implementation of Solvency II). It will do so by drawing upon real data provided by insurance companies in the solvency and financial condition report, which all insurers are obliged to publicly disclose.
Dorota Jaśkiewicz

Innovations and Risk Analysis


Chapter 8. Longevity-Linked Annuities: How to Preserve Value Creation Against Longevity Risk

The cost of longevity guarantees of traditional annuity products has increased in the recent scenario, characterized by declining mortality rates, in particular at unanticipated levels. Increasing the annuity loading rewarding the accepted longevity risk is not an option for annuity providers, given that individuals already consider annuities to be expensive. An alternative solution could be represented by participating structures, providing a link to some longevity experience. In particular, the benefit amount should be allowed to decrease, possibly maintaining a guaranteed minimum amount, in case of unanticipated longevity. This should be balanced by a reduction of the annuity loading or a participation to possible longevity profit.
Linking the annuity benefit amount to the longevity experience determines two opposing effects on the business value: possible losses are reduced but also possible profits. The trade-off is not obvious and requires appropriate assessment metrics. In this paper, we measure the business value of alternative linking designs. While we follow a traditional economic logic for defining the business value, namely, the present value of future profits net of the cost of capital, we suggest how to identify the main components of the present value of future profits; further, we assess the capital size according to the riskiness retained by the provider, so to make sure that the business value can represent appropriately the risk-return trade-off for the provider. The time profile of the business value is also considered.
Annamaria Olivieri, Ermanno Pitacco

Chapter 9. Modelling the Life Expectancy of Elderly People for Life Insurance and Pension Systems

This chapter demonstrates the importance for insurance and pension companies of correctly measuring mortality and life expectancy. The analysis focuses on mortality at higher ages (65–95), in line with an interest in pension-related applications where the risk associated with longer-term cash flow is primarily linked to uncertainty regarding future mortality rates. Over the last 30 years, the mortality of the population in developed countries has rapidly improved. This has significant financial implications for insurance companies as several essential classes of liability are sensitive to the direction of future mortality trends. This paper presents the results of estimating the Lee-Carter model for selected European countries and simulating term annuities for the retirement programmes of elderly people in these countries.
Anna Jędrzychowska, Jan Gogola

Chapter 10. The Challenges for Life Insurance Underwriting Caused by Changes in Demography and Digitalisation

Underwriting is a vital stage in the life insurance process and involves accepting individuals into an insurance fund on particular terms. The purpose of this chapter is to provide an overview of the underwriting development and its associated processes since the nineteenth century to the present and analyse contemporary challenges facing underwriting in life insurance. The focus will be on the two critical trends: demographic changes and the associated longevity risk, where a new generation of buyers need to be assessed; digitalisation and new technologies have created extraordinary possibilities for obtaining and analysing data. Based on questionnaire research, the discussion is illustrated by an analysis of attitudes towards sharing information with the insurance company through the use of new technologies that monitor health and lifestyles, which among others indicate that the level of acceptance regarding sharing data with the insurance company is low.
Ilona Kwiecień, Patrycja Kowalczyk-Rólczyńska, Michał Popielas

Chapter 11. Innovation in Life Insurance: The Economic Landscape and the Insurance Distribution Directive

Innovation, which is defined as the “beating heart of the economy of the twenty-first century”, is one of the key elements of economic policy and competitiveness. Together with entrepreneurship creates a set of factors conducive to the economic development. Innovations are also challenging for the insurance sector. On the one hand, sector itself can be innovative, with the latter supporting innovative activities of other entities by reducing the degree of risk aversion of these entities. The aim of the paper is to discuss whether life insurance sector is innovative and what is the impact of regulation on that phenomenon.
The paper consists two main parts. First part focuses on the idea of innovation within financial sectors starting from definition of innovation activity then moves to an analysis of innovation within financial markets which describes the research conducted by Silber and Barras. In general the authors assume that insurance markets are now in the first phase of revers Barra’s cycle (improved efficiency phase—it means that the markets innovate within new technology). This part aims at evaluating if the life insurance market is innovative in terms of Pearson’s secondary product innovation rather than on primary product innovations (innovates within distribution channels, etc.).
The second part focuses on an analysis of regulation that posted the innovation on life insurance within the scope of product design and distribution. Product design and distribution is now regulated in the European Union under the Insurance Distribution Directive, which introduced a set of rules known as product oversight and governance (POG). Thus, the paper investigates if the changes of the design of life products, which are expected from the implementation of the POG, may lead to Pearson’s primary product innovation, or they are a mere adaptation to the new regulatory framework.
Adam Śliwiński, Pierpaolo Marano

Chapter 12. Internet of Things (IoT): Considerations for Life Insurers

Internet of Things (IoT) is a cross-industry, worldwide trend led by connectivity to Internet and development of programmable devices and sensors. Smartphones, fitness trackers, smartwatches, car black boxes, smart home sensors, and smart clothes—these are just few examples of devices that constantly collect data about their users and track their behavior or lifestyle. Most of those devices are connected to the Internet, directly or indirectly so this data can be saved and shared.
Like many other industries, the insurance industry has also been affected by IoT. Multiple IoT solutions have successfully been applied in the non-life insurance (insurers have offered smart home policies and telematics motor insurance). Life and health insurers are seeking options to use data collected by wearables as regular tracking of physical activity and health conditions creates new opportunities for policy underwriting, pricing, and claims handling. IoT-linked life and health insurance is sometimes called PAYL (pay as you live) or connected life insurance.
This chapter provides an overview of IoT in insurance and addresses current issues, opportunities, and challenges in the life and health insurance areas. It presents typical PAYL products and explains how wearable data can be applied by insurers. Possible IoT applications will be presented for various stages of the life insurance value chain, focusing on underwriting and claims handling.
Aleksandra Małek

Chapter 13. Discussion of Reducing the Risk of Cancer in Life and Health Insurance

The dynamics of the increase in illnesses, including oncological diseases, causes a different view on the scope of insurance protection offered by insurance companies. The way to limit the risks inherent in life insurance should not just be to add inclusions to offers. It is possible for insurance companies to focus on other activities that may not only reduce the consequences of liability for specific risks but also improve the offer and product sales. The purpose of the chapter is to demonstrate the increasing risk of cancer in life insurance and its consequences. The study contains not only to analyse examples of designs of health insurance products with the option of insurance against cancer, the so-called “cancer cover type health insurance”, but also to demonstrate the benefits of supplementing insurance products with additional elements to reduce the potential effects of negative events. Presentation of the experiences of one country (Poland) in this respect should become the opening for a debate on the form of offers constructed by insurance companies in different countries, which could be beneficial for economic and social security of the insured.
Maria Węgrzyn
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