Life Insurance in Europe: Risk Analysis and Market Challenges PDF
Preview Life Insurance in Europe: Risk Analysis and Market Challenges
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 ©SpringerNatureSwitzerlandAG2020 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartofthe materialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors, and the editorsare safeto assume that the adviceand informationin this bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG. Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland 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
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