Sample calculations for life insurance products are often too optimistic, the financial regulator has found. The supervisory authority is calling for swift adjustments.
Transparency and information when concluding life insurance policies are often insufficient is the conclusion of an analysis by the Swiss Financial Market Supervisory Authority (Finma), which examined the sample calculations of life insurers.
The offers for unit-linked and classic life insurance policies contain sample calculations for three scenarios, as required by Finma. These are intended to enable policyholders to assess the risks and possible future returns of the life insurance products in question.
Majority of Overly Optimistic Examples
More than 90 percent of the sample calculations examined by Finma showed a yield development that was «in some cases far too optimistic,» according to a media release from the regulator on Wednesday. This applies in particular to an unfavorable scenario.
The unfavorable scenario is intended to show how high the return on the life insurance product could be at the end of the policy in the event of a poor investment result. In this case, the insurers reported values during the period under review that were well above the risk-free return, even assuming a poor investment performance.
No Guarantee in a Favorable Market Environment
The study also shows, among other things, that around 8 percent of customers who took out unit-linked insurance policies without a guarantee with a term of ten to eleven years between 2010 and 2011 earned less than the risk-free return on the savings portion of their premiums.
According to Finma, this shows that policyholders can expect investment results below the risk-free return even if the financial markets develop positively.
Rapid Adjustment of Contracts Required
The revision of the Insurance Supervision Act (ISA) and the Supervision Ordinance (SO) is intended to strengthen Switzerland as an insurance center and, in particular, customer protection. The revised provisions will come into force with transition periods on January 1, 2024. They also contain requirements for sample calculations.
Finma is now calling on life insurers to make adjustments quickly so that customers can conclude new contracts in compliance with the transparency and information requirements, according to the statement.
