British life insurance

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The collective term British life insurance denotes a large number of different life insurance and annuity insurance products that are typically offered by insurers based in Great Britain or in the Anglo-Saxon area. As part of the European internal market for insurance, these products can also be offered to citizens in other EU member states, either directly from Great Britain or through a branch of the insurer in the relevant member state.

British life insurance market

The UK life insurance market has existed for over 200 years. It has a share of around 18 percent in the European insurance market, making it the largest sub-market in Europe and the third largest in the world. The companies manage a total of around £ 1,092 billion and pay out £ 247 million a day in benefits (pension benefits, life insurance claims) and, as institutional investors, hold around 20 percent of British shares . The contracts are usually concluded for the purpose of capital investment, private retirement provision or to secure a loan . In the UK life insurance market endowment life insurance with the British form of be profit sharing (with-profit endowments) or in many cases unit-linked life insurance policies offered. In recent years, complex hybrid forms have increased more and more.

Stock investing and smoothing out results

The main difference between a UK and most continental European insurers is their investment policy. Due to the European regulations, the basic legal requirements are largely the same in all member states of the EU. However, most continental European life insurers offer relatively high guaranteed maturity benefits. In some countries, e.g. B. Germany from 2008, the surrender values ​​must also be guaranteed by all providers, including British insurers, during the term. British life insurances only provide relatively few guarantees and these only when they expire. Surrender values ​​are usually not guaranteed. This gives British life insurers much greater flexibility when it comes to capital investments and they can therefore invest to a much greater extent in highly volatile capital investments such as stocks, albeit always within the framework of the Europe-wide upper limit of 35% of total capital investments. In the context of unit-linked life insurance, the capital investment is free within the scope of the fund prospectus.

As a result of this investment policy, individual British life insurers have achieved relatively high investment returns, some of which benefit policyholders as part of the policyholder participation. However, the results of such an investment are very volatile and unpredictable. Particularly with short terms in times of the stock market, some British life insurers have generated significantly higher returns for policyholders than traditional continental Europeans. On the other hand, there were also insurers with much worse results. In the case of contracts with the long terms of two to three decades or even longer that are customary in Germany, the temporary results of volatile investments balance each other out, but the capital market development in the last contract years is often decisive for the overall result. There is no evidence that better long-term results can be achieved in this way than with the safety and reliability-oriented continental European approach.

As is often the case in continental Europe, the British form of profit sharing effects a certain “smoothing” of the strong fluctuations in investment income, albeit at the expense of causal justice . Tips are not distributed, but put on hold and used for improvement in particularly bad years, especially for reasons of competition. When determining the policyholder's profit participation, British insurers have a discretion that is legally unimaginable in continental Europe.

Cost structure

The essential details of the insurance contract must also be communicated to the customers of British life insurers in accordance with EU law prior to the conclusion of the contract: investment procedure for the funds, insurance conditions, contract law, withholdings from premiums not intended for investment and risks. British life insurers, too, are presented with non-binding illustration and model calculations in advance, in which fictitious value developments are calculated on the basis of various growth scenarios after all deductions from the premiums. In particular, this also makes it possible for the customer to see which return must be achieved so that the system can compensate for the deductions from the premium. The surrender values, which are not guaranteed, do not take into account the initial acquisition costs immediately at the beginning, but spread them over 5 years, as in some continental European countries, Germany from 2008 onwards.

Bankruptcy Protection Fund

In addition to the British Insurance Supervisory Authority ( FSA ), the “Policyholder Protection Act” created the legal basis for protecting investors in the event of insurance bankruptcy as early as 1974. The British fire service fund now also applies to investors who are not resident in the UK (limited to the EU). Participation in the Financial Services Compensations Scheme (FSCS) security fund is compulsory for British insurance companies and covers 90% of the contract values ​​(including any surpluses) in the event of insolvency. Insurance companies that are not headquartered in the UK but offer British-style life insurance are not part of the FSCS protection fund. This is an important aspect, especially for company pension schemes. To assess the insolvency protection, the respective financial strength of the Anglo-American companies must always be checked, since ratings usually only apply to the main group and not to the associated branch in Germany, which can represent an independent company. In the run-up to insolvency, only guarantees from the parent company can help the customer.

providers

The best-known providers in the German market include: