Wednesday, August 5, 2020

Life insurers have excessively high transaction costs

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GThere has been strong opposition to life insurance commission. They would like to abolish consumer advice centers altogether in favor of fee-based advice, and efforts are being made in the federal government to cover them. Both positions are based on the observation that excessively high final remuneration can lead to conflicts of interest and that intermediaries no longer recommend pension solutions that suit the customer. Insurers and intermediary associations are resisting this.

Philipp Krohn

Business editor, responsible for “People and Business”.

But even from neutral science, deficiencies in the system are complained about. “The legislature must therefore not remain idle,” wrote Ludwigshafen business economics professor Hermann Weinmann in a multi-part guest article, the first part of which was recently published in the “Journal for Insurance”. Since evaluating the law on life insurance reform in 2018, he has allowed too much time into the country. Unlike the insurance-critical groups, however, he points out that differentiated solutions are needed because sales forms follow different rules.

Hide and seek game with scope

Weinmann has been analyzing the annual reports of a selection of life insurers every year for a number of years and thus has a good overview of data. “Some life insurers, aase,” “he criticizes. “Above-average cost ratios are to be viewed critically.” Because they limit the funds that can be distributed to customers. Using the example of a business report, he shows that even in the case of exceptionally high costs, this problem is not discussed with the public. In addition, there is too little transparency about the costs that burden the insured.

Because there are insurers with employed sales, independent representatives and independent brokers, the issue of sales costs cannot be reduced to commissions that flow directly to the agent. In order to achieve a better overview for the consumer, the cost results would have to be broken down, since the insured persons have a claim of at least 50 percent according to the minimum supply regulation. “The companies have a lot of room for maneuver in terms of costs and also use this room in the form of a hide-and-seek game,” Weinmann writes in his article. The fact that the product world is becoming more and more inconsistent opens up the possibility, for example, of aligning commissions not with the amount of the contribution, but with a measure of success such as the increase in wealth. This calculatory arbitrariness must be stopped.

The scientist is not committed to a regulatory model. However, he emphasizes that it is not consistent to apply a commission cover only to pension insurance, but not to life insurance or disability insurance. If excessive remuneration were not restricted, the legislature would at least have to drop the ban on commission fees.

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