The return of the classic life insurance products
Before the financial crisis, insurance products with high investment risks such as unit linked products were very popular due to the very attractive return they provided.
As a consequence of the financial crisis, return on investments dropped and risk aversion grew, which led to a renewed popularity of safe insurance products. It is within this context that classic life insurance products, traditionally considered as safe insurance products, are at the forefront again.
Classic life insurance products
Regarding vocabulary terms, in Belgium, ‘classic life insurance’ is a commonly used word, but the product is also called ‘branche 21’. In France, it is also referred to as ‘grande branche’ or ‘assurance prévoyance’ (‘contingency insurance’).
When signing a classic life insurance contract, the commitments of both parties (insured and insurer) are clearly defined from the start. The amounts of the premiums and the different technical baselines (such as interest rates) are fixed when signing the contract. This means that the insured capitals are fully guaranteed and that the insured does not take any risk whatsoever.
The different types of classic life insurance
There are three main types of classic life insurance policies: insurance policies « with deferred capital without payment of premiums », insurance policies « with deferred capital with payment of premiums » and a mix of these two types of insurance policies. In the first case, the capital will only be paid if the insured is still alive at the policy’s term; in the event of death before the policy’s term, no capital will be paid. In the second case, the capital will be paid in the event of the insured surviving the policy’s term; in the event of death before the policy’s terms, the premiums will be repaid. In a mixed type of classic life insurance policies, the capital will be paid whether the insured is alive or deceased at the policy’s term.
Regarding their other main properties, classic life insurance policies are all very similar: most of them have been subscribed for the long term (60 or 65 years), include a fixed premium and guarantee the amount of the insured capitals.
The IT needs of insurance companies
The classic life insurance products are the first insurance products that have been commercialized on the market. Most of the IT insurance policy administration systems manage this type of products. However, most of these systems have been neglected these last 5 years as insurance companies preferred focussing on systems that manage life insurance products with high investment risks (unit linked) because they provided better returns before the break out of the financial crisis.
With the financial crisis and the return of the classic life insurance products, most of the insurance companies began to realize that their IT life insurance policy administration system had become obsolete, more in particular with regard to the 3 following points :
Operational efficiency : the existing systems often show an insufficient level of automation.
Product innovation : the existing systems do not allow rapid innovation and impose a « time to market » that is too long.
Commercial efficiency : most of the times, the existing systems have fixed interfaces that performed very badly regarding ergonomics and that do not allow remote access which prevents the implementation of an efficient sales network.
Renewal of the market
The return of the classic life insurance products and the obsolescence of the current IT policy administration systems have forced insurance companies to reconsider and adapt their IT equipment.
The market analysts confirm this trend by figures : about 50% of the insurance companies are busy or are planning to replace their IT life insurance policy administration system in the next 12 months. This trend creates interesting opportunities for software companies providing advanced administration tools!
Didier Lambert – Insurance expert (actuary) BSB
Erika Bourguet – Marketing Manager BSB
