Life Insurance in Europe: Risk Analysis and Market Challenges

215 Pages·2020·5.556 MB·English

by  Marta Borda, Simon Grima, Ilona Kwiecień

Financial and Monetary Policy Studies 50
Marta Borda
Simon Grima
Ilona Kwiecień  Editors
Life Insurance
in Europe
Risk Analysis and Market Challenges
Financial and Monetary Policy Studies
Volume 50
SeriesEditor
AnsgarBelke,UniversityofDuisburg-Essen,Essen,Germany
Moreinformationaboutthisseriesathttp://www.springer.com/series/5982
(cid:129) (cid:129) ń
Marta Borda Simon Grima Ilona Kwiecie
Editors
Life Insurance in Europe
Risk Analysis and Market Challenges
Editors
MartaBorda SimonGrima
DepartmentofInsurance DepartmentofInsurance
WroclawUniversityofEconomicsand UniversityofMalta
Business Msida,Malta
Wroclaw,Poland
IlonaKwiecień
DepartmentofInsurance
WroclawUniversityofEconomicsand
Business
Wroclaw,Poland
ISSN0921-8580 ISSN2197-1889 (electronic)
FinancialandMonetaryPolicyStudies
ISBN978-3-030-49654-8 ISBN978-3-030-49655-5 (eBook)
https://doi.org/10.1007/978-3-030-49655-5
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Preface
The European life insurance sector has faced many new challenges due to new
technologies and sociocultural and demographic trends. These disruptions have
changedtheinsurancemarketinseveralways.Newtechnologiesappliedinunder-
writing and claims management processes are changing life insurance business
practices. Today, purchasing a life insurance product is faster and easier than ever
before. On the other hand, digitalization of the life insurance sector creates new
challenges because it requires new approaches to risk assessment and premium
calculations.
Europeancountrieshavealsofaceddemographictrends,inparticularpopulation
ageing. Nowadays, thanks to progress in medical and diagnostic technologies and
infrastructure, improvement in the population’s health status as a result of healthy
lifestyles, and changes in the educational structure of the population (including an
increaseinsocialawareness),manypeoplearelivinglongerandlonger.However,it
shouldbeemphasizedthatalongerlifeexpectancymeansalongerretirementperiod,
anincreaseinthefinancingneedsofretiredpeople,andagreaterdemandforhealth
careservicesprovidedtotheelderly.Byofferinginnovativelifeandhealthinsurance
products,theinsurancesectorcancomplementpensionandsocialinsurancesystems
inmanagingthelongevityrisk.
New trends in abuse and mis-selling have also arisen, triggering the need and
searchfordifferentapproachestosupervisionandregulatorymeasures.Thefinancial
marketcrisishasalreadysignificantlyaffectedtransformationsintheareaofsuper-
vision; this implies a need for discussion about and response to systemic connec-
tions, on the one hand, and the growing number of regulations which significantly
affects the functioning of insurance companies and compliance risk, on the other.
Recently, however, there have been conflicting tendencies in the sector, such as
movements to strengthen consumer protection, the large-scale phenomenon of
claims based on mis-selling, and a crisis of confidence in investment insurance
instruments. These issues, combined with the risk of market overregulation and
theinnovationsinproductsandservices,includingtheconditionsofdigitizationand
newriskcategories,seemtobeofkeyimportancetothesectoratpresent.
v
vi Preface
Theobjectiveofthisbookistobringtogetherpractical,theoretical,andapplied
researchinallareasrelatedtolifeinsuranceproductsandmarketsinthefaceofthese
newchallenges.Infact,intheirindividualchapterstheauthorsdealwithproblemsof
riskanalysisandevaluationinlifeinsurance,demographicchallengesinlifeinsur-
ance,consumerprotectionintheEuropeanlifeinsurancesector,distributionoflife
insurance products, mortality risk modelling, application of life insurance in con-
temporarypensionsystems,andthefinancialstabilityandsolvencyoflifeinsurers.
The book is divided into two parts. The first part of the book consists of seven
chapters and gives an overview of the European life insurance market and the
challengesbeingfaced. Thefirstchapterdealswiththeanalysisofriskandmarket
challenges in the European life insurance industry. The authors depict the life
insurance market position, structure, size, main features, and the most important
factors,aswellasitspotentialanddevelopmentprospects.Indoingthis,theauthors
bring out the new risks, challenges for life insurance business, and regulatory
changes. In Chap. 2, the author highlights European life insurance social determi-
nants.Sheexplainsthat,similartostatesocialinsurance,lifeinsurancemitigatesthe
socialrisksofageing,unemployment,reducedhealth,poverty,andsimultaneously
saving for future well-being. She assesses the relationship between life insurance
premiums and social indicators: specifically, demographic, labour, and social pro-
tectionin24countriesoftheEuropeanUnionin2007–2017.Theauthorsofthethird
chapterdiscussthechallengesfacedbylifeinsurancecompaniesintheBalticstates.
TheydiscussthetrendsconsideredinthesethreesmallEUstatesbetween2014and
2018 and uncover the challenges that life insurers in these countries are currently
facing. An evaluation of the current and future challenges in the Turkish life
insurance market is carried out by the authors of the fourth chapter. The authors
determine and discuss the development trends of the life insurance sector between
2008 and 2019 in Turkey. Chapter 5 relates to the role played by the European
Insurance and Occupational Pensions Authority (EIOPA) in developments in the
insurance sector by looking at the ‘European consumer protection model’. The
authors set the global framework, then concentrate on the analysis of consumer
protection as part of the global agenda, and finally focus attention on the role and
performance of EIOPA in the protection of consumers in the insurance sector. In
Chap.6,theauthordiscussesanewmodelofinvestmentlifeinsurancedistribution
in the context of an EU consumer protection policy. The author highlights issues
related to the latest phenomena occurring in the European life insurance market
whichhavereinforcedsomecorrectiveandpreventivemeasuresaimedattheclients
ofinvestment insurance products,suchasunlawful business practicesofinsurance
companies, providing insufficient information policies, and offering products with
an unclear structure. The author of the final chapter of the first part of this book
(Chap. 7) examines the first years of Solvency II implementation in Poland by
delvingintoaspectsofsolvencycapitalrequirementsdrivenbystandardformula.
The second part of the book focuses on innovations and risk analysis in life
insurance. In the eighth chapter, problems related to longevity risk in annuity
products are discussed. The authors examine annuities in which the benefits are
linked to the mortality experience as an alternative to traditional annuity products.
Preface vii
They investigate the business value, measuring it as the present value of future
profitsnetofthecostofcapital.Thetimeprofileofbusinessvalueisalsoaddressed.
Modelling of mortality rates for elderly people for the needs of life insurance
companies and pension systems is carried out by the authors of the ninth chapter.
ResultsoftheirestimationsofLee–CartermodelforselectedEuropeancountriesand
simulated term annuities for the retirement schemes of elderly people in these
countries are presented. Chapter 10 provides a discussion on the development of
theunderwritingprocessandrelatedtechniques,focusingontwoimportantcurrent
trends:(1)demographicchangeswithlongevityriskand(2)digitalizationandnew
technologies which create extraordinary possibilities for obtaining and analysing
data. The authors of the eleventh chapter undertake an interesting research issue
aimed at assessing the innovativeness of the life insurance market, including pro-
cesses and products, referring to reverse Barras’ cycle and Pearson’s types of
innovations. This is followed by an analysis of the dilemma regarding changes in
the design of life products which are expected in the implementation of product
oversight and governance (POG) and may lead to primary product innovation or a
mereadaptationtothenewregulatoryframework.Chapter12dealswiththesubject
oftheInternetofthings(IoT)ininsuranceandaddressescurrentissues,opportuni-
ties,andchallengesintheareasoflifeandhealthinsurance,focusingonapplication
ofwearables,healthmobileapps,andmedicaldevices.Thedevelopmentofcurrent
trendsispicturedandanalysedforthemarketintermsofnewtechnologiesandthe
application of IoT solutions by insurers in their activities, taking into account the
impactonkeyelementsofthevaluechainforinsuranceactivity.Finally,Chap.13
addressestheproblemofthecancerriskasariskwhichiscurrentlyincreasing.The
studytouchesonissuesaroundthescopeoftheofferingsoflifeandhealthinsurance
markets,riskreductionopportunities,andsolutionsinwhichprotectionisavailable.
Astheeditorswewouldliketothankthereviewersofthebook—DrPatrickRing
andProf.EleftheriosThalassinos—fortheircommitmenttoreviewtheentirestudy
and many valuable comments which inspired this publication as well as further
developmentdirectionsoftheresearchpresentedinthebook.
Finally, we hope that this book will contribute to the discussion about the
condition and development of the life insurance market in Europe and its current
andfuturechallenges and provide recommendationstoinsurers andother financial
institutions on how to manage the risk in life insurance more and more efficiently.
We also trustthat it will bean interesting collection for academics and researchers
seekingtoanalysethesubjectoflifeinsurance.
Wroclaw,Poland MartaBorda
Msida,Malta SimonGrima
Wroclaw,Poland IlonaKwiecień
Contents
PartI MarketPictureandDevelopmentChallenges
1 EuropeanLifeInsuranceMarket:AnalysisofCurrentSituation
andDevelopmentProspects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
MartaBorda,MagdalenaChmielowiec-Lewczuk,andIlonaKwiecień
2 SocialDeterminantsofLifeInsuranceintheEuropeanUnion. . . . 19
NataliaGrishchenko
3 TheChallengesFacedbyLifeInsuranceCompaniesintheBaltic
States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
RamonaRupeika-Apoga,InnaRomānova,andSimonGrima
4 TheTurkishLifeInsuranceMarket:AnEvaluationofthe
CurrentSituationandFutureChallenges. . . . . . . . . . . . . . . . . . . . 45
ErcanOzenandSimonGrima
5 TheRolePlayedbyEIOPAintheDevelopmentsintheInsurance
SectorEuropeanConsumerProtectionModel. . . . . . . . . . . . . . . . . 59
JanMonkiewiczandMarekMonkiewicz
6 ANewModelofInvestmentLifeInsuranceDistributioninthe
ContextofConsumerProtectionEUPolicy. . . . . . . . . . . . . . . . . . . 73
AnnaOstrowska-Dankiewicz
7 AnalysisofCapitalRequirementsinLifeInsuranceSectorUnder
SolvencyIIRegime:EvidencefromPoland. . . . . . . . . . . . . . . . . . . 87
DorotaJaśkiewicz
PartII InnovationsandRiskAnalysis
8 Longevity-LinkedAnnuities:HowtoPreserveValueCreation
AgainstLongevityRisk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
AnnamariaOlivieriandErmannoPitacco
ix
x Contents
9 ModellingtheLifeExpectancyofElderlyPeopleforLifeInsurance
andPensionSystems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
AnnaJędrzychowskaandJanGogola
10 TheChallengesforLifeInsuranceUnderwritingCausedby
ChangesinDemographyandDigitalisation. . . . . . . . . . . . . . . . . . . 147
IlonaKwiecień,PatrycjaKowalczyk-Rólczyńska,
andMichałPopielas
11 InnovationinLifeInsurance:TheEconomicLandscapeandthe
InsuranceDistributionDirective. . . . . . . . . . . . . . . . . . . . . . . . . . . 165
AdamŚliwińskiandPierpaoloMarano
12 InternetofThings(IoT):ConsiderationsforLifeInsurers. . . . . . . 177
AleksandraMałek
13 DiscussionofReducingtheRiskofCancerinLifeandHealth
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
MariaWęgrzyn