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European Insurance and Occupational Pensions Authority
Speech30 August 2022European Insurance and Occupational Pensions Authority

Navigating low rates, the pandemic and inflation – shifting patterns in life insurance

Keynote speech delivered by Chair Petra Hielkema at Handelsblatt's Strategiemeeting Lebensversicherung 2022 in Düsseldorf on 30 August 2022 CHECK AGAINST DELIVERY

Dear ladies and gentlemen, sehr geehrte Damen und Herren,

ich freue mich, heute hier bei Ihnen auf einer Konferenz zu Gast zu sein, die der Lebensversicherung gewidmet ist, einem Produkt, das den Menschen nicht nur finanzielle Sicherheit gibt, sondern auch die Gewissheit, dass ihre Angehörigen versorgt werden, wenn sie selbst nicht mehr da sind.

Wir hatten heute bereits die Gelegenheit, interessante Vorträge zu hören über die Zukunft der Altersvorsorge, darunter die Pläne der Koalitionsparteien; über die ersten Erfahrungen der Branche mit dem reduzierten Garantiezins in Deutschland; über aktuelle Aufsichtsfragen in der Lebensversicherungsbranche und viele andere wichtige Themen.

In meinem Beitrag werde ich die grundlegenden Entwicklungen in der Lebensversicherung beleuchten und dabei den Blick von Deutschland auch teilweise auf die europäische Ebene lenken. Insbesondere werde ich auf den Einfluss des Niedrigzinsumfelds des letzten Jahrzehnts auf die Verbrauchertrends bei Lebensversicherungsprodukten eingehen, bevor ich mich mit aktuellen Einflüssen und deren Auswirkungen befasse, wie zum Beispiel der Pandemie und der gegenwärtigen Phase höherer Inflation. Die meisten von Ihnen wird es nicht überraschen, dass fondsgebundene Produkte in dieserAbhandlung auftauchen werden.

Ich hoffe, Sie erlauben mir, nun zum Englischen zu wechseln.


First off, let’s consider the big picture. The low interest rate environment that much of the developed world experienced over the past decade has had structural consequences across the financial sector and insurance is no exception in this regard. The drop in risk-free rates to and then below zero meant that investors, whether institutional or retail, faced value stagnation or outright losses when investing their money with minimal risks. With riskless investments offering no returns, investors had to consider riskier investments in their search for yield. However, as more and more money piled into riskier investments, nominal rates fell across the board due to high demand.

Just about a year ago, in autumn 2021, European high-bond yields were narrowing in on 2% while inflation came in at 3% - a decade-high number back then. This essentially meant that real yields turned negative even for so-called “junk bonds” for the first time.

Doubtless, this is an extreme example. Still, it goes to show the difficulties investors faced when looking for returns. It was in this yield-barren environment that insurers were to manage policyholders’ money and these conditions have had an impact on how and with what products the sector operates. An obvious change in the life insurance sector has been the steady rise of unit-linked products.

Traditional life insurance products typically offer guarantees at a set rate and these guarantees were becoming increasingly more challenging to meet. After all, the volume of negative-yielding debt topped 18 trillion dollars by the end of 2020. That the German Federal Ministry of Finance decided to cut the maximum technical interest rate from 0.9% to 0.25% as of the beginning of this year, 2022, was a sign and acknowledgement of this challenge. As guaranteed rates sank, so did the appeal of traditional profit participation life insurance products among consumers.

EIOPA’s analysis of 2020 data showed a substantial, more than 10% year-on-year decline in traditional life insurers’ gross written premiums in Europe. This drop in interest for profit-participation products resulted in an overall decrease in 2020 in premiums for the whole life insurance sector in the EU, reversing the upward trend observed in the previous years. It cannot be excluded that the Covid-19 pandemic played a role in this development. It is worth noting nonetheless that while traditional products suffered some setbacks, index-linked and unit-linked insurance continued to grow to the tune of 3% on the year. In several member states, unit-linked insurance grew by more 15% in 2020 on the year. Essentially, as traditional products flagged, unit-linked seemed flourish and thrive. Before I delve into how these figures played out in 2021, let us consider the ramifications of the pandemic for the sector and its influence on consumers’ choices.


The Covid-19 pandemic brought life across the globe to a standstill as authorities scrambled to stop the spread of this deadly virus. Businesses were shuttered, commerce all but froze up and lockdowns forced people to leave their homes only to purchase basic necessities. This massive disruption inadvertently had a negative impact on markets as economic activity also paused. Share prices were in freefall, liquidity started drying up and it took unprecedented help from monetary and fiscal authorities to counteract this seizure.

Through these interventions a measure of stability was regained, but the uncertainties still have not evaporated fully and volatility remains high. Higher volatility exposes policyholders of unit-linked products to negative returns in adverse market conditions as the performance of such products is linked to the valuation of the underlying assets.

With traditional products being less appealing due to the prolonged low interest rate environment and with unit-linked products being exposed to volatile markets with downward risks due the pandemic, increasingly more hybrid products started being promoted and distributed. These products essentially combine different forms of capital guarantees with varying levels of exposure to market volatility. In the first year of the pandemic, their growth outstripped that of both traditional and unit-linked products in markets like Austria, Belgium, Germany, Italy and Luxembourg while also emerging in Greece, Hungary, Slovakia and Slovenia.

Still, insurance-based investment products in general proved to be resilient despite high market volatility. Unit-linked products indeed delivered higher net returns than hybrid and profit participation products, keeping their allure to consumer fairly untarnished. The shift from traditional profit participation products to hybrid and unit-linked products observed over the past years further accelerated in 2020.

Figures for 2021 that we’re analysing at the moment and which will be presented more in detail in our upcoming Consumer Trends Report show a similar trend albeit at a speed not yet seen before. The unit-linked segment posted growth figures in gross written premium above 30% across the Union. This rapid growth is a common pattern in most member states, some of whom witnessed a doubling of gross written premiums in this line of business. One element that nuances the picture is that profit participation products also ticked up by around 2%.

While it is difficult to determine the drivers behind these trends, the sizeable increase in 2021 could well be a consequence of policyholders using their disposable savings from the pandemic to increase their premiums or make one-time single premium payments. Solidly performing stock markets and an environment that was already turning inflationary may have given unit-linked the edge here. In fact, there is some evidence supporting the view that the growth in premiums came from top-ups by existing clients rather than from new business: the increase in gross written premium we observe is not accompanied by an increase in the total number of contracts. New contracts may in fact have slowed down as consumers choose to prioritize other expenses as they face a higher cost of living.

And with higher cost of living, we come to the third impact that I wanted to talk to you about and this is none other than inflation.


Prices started climbing in mid-2021 due to pandemic-related effects such as pent-up demand spending and disruptions to global supply chains, which resulted in a situation where “too much money is chasing too few products.” Back then, most economists and projections expected this to be a temporary phenomenon, but consumers’ spending behaviours shifted, pandemic-related bottlenecks continued to persist, and another massive supply shock was added to the equation when Russia commenced its hideous and unprovoked attack on Ukraine. Soaring commodity and energy prices have since then been the main drivers of inflation, which has reached 8.9% for the euro area last month.

As the shock we are living through not only causes prices to rise but also reduces economic growth prospects on the continent, we are on the verge of a cost-of-living crisis as consumers have less disposable income. Lower disposable income means that people spend more of their monthly revenues on running expenditures while a smaller share of their income may go towards saving or investment. Inflation does not only impact people’s monthly budget. It has a large influence on past savings as well. Higher than expected realized inflation has the potential to erode the real value of the benefits that policyholders get out of their insurance products. European financial supervisors, regulators and policymakers have always been very considerate of consumers’ needs and their fair protection. Our commitment in these difficult times must not dwindle.

Earlier in my speech I mentioned how we’ve seen a steady shift away from traditional profit participation products towards unit-linked solutions over the last years and how this steady shift accelerated rapidly 2021. One of EIOPA’s key considerations when looking at product design and distribution is whether products offer consumers fair value for money. If you have followed our work on the supervisory side, you’ll know that we have been raising some value-for-money concerns specifically about unit-linked products.

In the last part of my speech, I’d like to focus on what these issues are and what can be done to address and alleviate them.


Unit-linked products are highly complex products. If well designed, they can provide consumers with significant benefits, allowing them to seek higher returns than they could with other insurance-based investment products. However, not all unit-linked products on the market are designed in a consumer-centric manner and national competent authorities have over the years reported several issues such as mis-selling or mismatches between actual and expected returns.

Value for money issues are closely linked to product oversight and governance rules and it’s important to make sure that consumer needs are taken into account throughout the entire product lifecycle, from design to distribution. There are already some value-for-money principles enshrined in the existing product oversight and governance framework, but disparities exist in how manufacturers and distributors implement these requirements as well as in how they are supervised by the competent authorities. In order to tackle these issues and deliver better value to consumers, which is especially important when household finances are stretched due to high inflation, EIOPA developed a common approach to taking on value for money risks.

Issue number one is pricing. Here our expectation is that manufacturers should be able to present a structured pricing process with clearly identified and quantified costs and charges that are not undue. Our costs and past performance report laid bare that certain products continue to rack up high costs, which have a significant detrimental impact on policyholders’ future returns.

Another important aspect is the intrinsic complexity of unit-linked products. Understanding the benefits and risks involved requires a high degree of financial literacy not only from the insurance distributors marketing these products, but also from potential customers. With that missing, it becomes questionable whether customers are fully aware of the characteristics of the policy they consider taking out and whether they can make informed decisions. It’s therefore crucial that manufacturers measure the complexity level of these products and that this is taken into account when setting the target market and the distribution strategy. In our technical advice to the European Commission for its Retail Investment Strategy, we recently called for consumer information in insurance-based investment products to be simpler, shorter, more visual and free of unnecessary jargon. Unit-linked products, especially given their structural complexity, should take heed of that.

Our third point is that manufacturers shall properly test their unit-linked products according to scenario analyses. This should happen before market introduction, after significant adaptations and whenever the needs, objectives and characteristics of the defined target market or the risks posed to it have changed significantly.

Fourth, manufacturers should continuously monitor and regularly review their unit-linked products to identify events that could materially affect the main features, the risk coverage or the guarantees of those products.

Last but not least, supervisors should monitor manufacturers’ efforts to offer fair value for money to their customers. They should develop internal metrics such as benchmarks to help identify offerings that seem not to deliver value for money.


I would like to use the end of my speech not to prophesy about the future but to pass on a message.

We have seen that the low interest rate environment precipitated a shift out of traditional life insurance products towards unit-linked ones. Neither the pandemic, nor the current inflation shock seem to have put the brakes on this development.

Given this unrelenting growth and the numerous issues we supervisors have underlined over the past few years, value for money issues with unit-linked products can arguably become a main source of concern for the life insurance line of business itself.

Even though unit-linked is steadily gaining ground, it’s premature to herald the end of traditional life insurance as some analysts have done. Last month brought about the end of negative rates in Europe and more interest hikes are on the horizon. Rates across the board have started to rise, but with inflation in the high single digits, it is debatable whether low guaranteed returns offer value to consumers. The risks have not disappeared. Whether or not there’ll be a return to traditional profit participating products is still up for grab. And we will only get the answers to this question in the years to come.

In the meantime, however, there’s nothing stopping us from correcting the known deficiencies of unit-linked products and make them provide better value for consumers along the five points I highlighted before.

I’m sure insurers in the room and beyond will agree with me when I say that satisfied customers are the reflection of useful products and a healthy sector.

That is what we would like to achieve, and we trust that our goals are aligned on this issue.

Ladies and gentlemen, thank you for your attention.


Publication date
30 August 2022
European Insurance and Occupational Pensions Authority