High inflation has consequences for property and casualty insurance. However, it will likely be some time before the reimbursement of interest rates has a positive effect on life insurance.
According to industry experts, most life insurance customers cannot yet count on a rate hike on the classic old age reserve, despite the return on the capital market. At the same time, due to high inflation, consumers must be prepared for an increase in the prices of property and personal insurance.
“I would not expect an increase in the current interest in classic capital life insurance in the next three to five years,” said Herbert Schneidemann, CEO of the German Actuarial Association, to news agencies dpa and dpa-AFX. A faster rise in interest rates is imaginable for life policies where customers only pay a one-time premium.
To provide high guarantees for old contracts of up to four percent, insurers had to save money when interest rates fell. This money could not be distributed to clients. As government bond rates have recently risen, the capital buffer – in technical jargon the additional percentage reserve – is now on average sufficiently filled. “The additional reserve for interest is fully funded of around EUR 100 billion at the end of 2021.” Said Schneidemann. This means that many insurers no longer have to put aside money.
On the other hand, a change in interest rates creates a so-called hidden loads. Schneidemann expects many insurance companies to reduce their hidden charges first in line with the “pay more cautiously” principle and only then increase their customers’ share of profits.
The excess participation that life insurers determine annually depending on the economic situation and the success of their investment strategy is part of the continued interest in classic old age insurance. In addition, there is a guaranteed interest rate that is set by the Federal Ministry of Finance according to the calculations of the Association of Actuaries and the recommendations of the Bafin financial regulator. This is called the maximum technical interest rate for new contracts that have been concluded since the beginning of the year is currently 0.25 percent. “I think it will be a few more years before the maximum technical interest rate increases again – as long as interest rates continue to stabilize,” said Schneidemann, CEO of Bayerische insurance group.
The current profit-sharing and guaranteed interest, which only relates to the portion of the savings after deduction of costs, currently average just over 2%, according to his information.
This insurance is more expensive
Property and personal insurance are likely to become more expensive due to the sharp rise in inflation. For example, building insurance is affected by an extremely sharp increase in construction costs. “My personal assumption is that by canceling the changes to non-compulsory insurance, we will see faster and higher premium corrections,” said actuary Schneidemann (actuary). For example, insurers can terminate homeowners’ insurance contracts and thus force higher premiums on their customers.
In motor insurance, “another aggravating factor is that in addition to inflation, the number of hailstorms is rising sharply,” said Schneidemann. Therefore, comprehensive insurance policies in particular may become more expensive for customers. Unlike life insurance, an engine
Liability insurance companies and private health insurance can cancel insurance policies that are not compulsory, such as home or building insurance. (dpa)