The impact on the insurance business model and consumers

• Author: European Insurance and Occupational Pensions Authority (EU body or agency)
• Pages: 46-52

5. THE IMPACT ON THE INSURANCE BUSINESS

MODEL AND CONSUMERS

As the prolonged low yield environment is challenging the

prof‌itability of insurers, it also has adirect impact both on

the insurers’ business models and on policyholders. The

f‌irst section of this chapter elaborates on the impact of

low yield environment on insurers’ business model and

additional implications of the Covid-19 pandemic. In the

second section, the eect of low yields from a consum-

er’s perspective is discussed taking into account also the

impact of virus outbreak.

5.1. IMPACT ON BUSINESS MODEL

For the insurance market on aggregate, agradual shift

can be observed from with prof‌it participation products

with guaranteed returns towards p ure unit-linked prod-

ucts and hybrid products – with apartial guarantee and

aunit-linked component– for which products the risks lay

mostly or entirely on policyholders (Figure 5.1). The share

of health insurance remains relatively stable across years

whereas the share of gross written premium for reinsur-

ance do not show aparticular pattern.

By splitting the gross written premium for life business

across countries (Figure 5 .2), aclear shift from with prof-

it participation business towards unit-linked and hybrid

products is indicated for many countries. In fact, based on

the 2016-2018 Compound Annual Growth Rate (CAGR)

for gross written premiums (GWP), it can be observed that

the unit-linked line of business grew signif‌icantly more

than with prof‌it participation line of business (9.02% vs

2.07%) and even slightly more than other life insurance

line of business (9.02% vs 7.71%). Furthermore, 18 out of

30 member states reported apositive 2016– 2018 C AGR

for unit-linked insurance and 8 out of these 18 reported

anegative 2016-2018 CAGR for with prof‌it participation.

Additionally, 22 out of 30 member states reported aposi-

tive 2016-2018 CAGR for other life insurance.

Figure 5.1: GWP-Life business (in %)

Q4 2016 Q4 2017 Q4 2018 Q4 2019

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

27.5%

30.0%

32.5%

35.0%

37.5%

40.0%

42.5%

45.0%

47.5%

50.0%

Index-linked and

unit-linked

insurance

Insurance with

prof‌it

participation

Other life

insurance

Health

insurance

Life

reinsurance

Health

reinsurance

Source: SII QRTs data from EIOPA Centr al Repository. Quarterly so lo

IMPACT OF ULTRA LOW YIEL DS ON THE INSURANCE SEC TOR, INCLUDING FIRST EFF ECTS OF COVID CRISIS

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