Positive socio-demographic and economic
fundamentals underpin the German life insurance sector and the
market is expected to register compound annual growth of 1.6% from
2012-2016, according to a new report – Life Insurance
in Germany, key trends and opportunitiesto 2016 – which is
available at the Insurance Intelligence Center.

The increasing life expectancy of Germany’s
population is one of the key fundamentals driving the German life
insurance segment forward. Between 2006 and 2011, for example, the
number of 80-year-olds in Germany increased from 16.01m to
16.74m.

Meanwhile, the German population aged over 55
is expected to account for 40% of the country’s overall population
by 2050. Germany’s ageing population is therefore, expected to
contribute towards the growth of the country’s life insurance
market as life insurance and pension products offering
post-retirement benefits become increasingly popular.

Stable economic growth is also expected to
shape demand for life insurance in Germany by 2016.

For example, economic improvements meant that
Germany’s unemployment rate declined from 7.7% in 2010 to 7.1% in
2011, and growing employment opportunities are expected to increase
levels of disposable income over the forecast period.

Low penetration rate

In spite of its strong fundamentals, life
insurance penetration in Germany as a percentage of GDP was 3.3% in
2011, which is lower than the EU average.

One of the main reasons for this low
penetration rate is the strength of the country’s state pension
system.

However, as the country raised the national
retirement age to 67 and has reduced benefits for future
pensioners, the popularity of private pension schemes has improved
at the expense of public pensions.

Furthermore, due to the introduction by the
government of tax benefits for life insurance with retirement
benefits, the German life insurance segment registered a growth
rate of 6.0% in 2010.

The German life insurance market grew at a compound annual
growth rate of 1.9% between 2007 and 2011, says the report.

 

 

Below: overall insurance company investments by type in
Germany in 2007

 

 

 

 

 

 

 

 

 

 

 

During this period, individual endowment was the largest of the
insurance categories analysed in the report.

In 2011, the report says, the individual
endowment category was valued at €30.08bn(US$41.89bn), which
represents a total market share of 35.3%.

The individual general annuity category was
the second largest, with a total written premium of €24.64bn in
2011.

The individual endowment insurance category is
expected to retain its position as the largest category in
Germany’s life insurance segment by 2016, with the individual
general annuity category expected to remain the second-largest.

Distribution channels

German insurance companies are highly reliant
on agents and brokers for distributing life insurance products.
Agencies accounted for 53.4% of new life insurance written premiums
in Germany in 2011.

Bancassurance recorded the second-largest
share of new life insurance written premiums in Germany in 2011, at
21.7%. The number of bancassurance distributors increased from 102
in 2007 to 106 in 2011, at a CAGR of 1.01% during 2007-2011.

Due to the dominance of agencies and the
strong growth of bancassurance during 2007-2011, these two channels
have been competing intensely to generate new life insurance
written premiums.

Meanwhile, the bargaining power of the
suppliers in the German life insurance segment is low to
medium.

Capital providers and reinsurers are the main
suppliers to the country’s life insurance companies.

The large number of multinational banks that
operate in Germany provides several options for life insurance
companies to raise capital.

Furthermore, Germany contains large domestic
life insurance companies that possess sufficient capital reserves
to finance expansion strategies without having to rely on external
capital providers such as banks and financial institutions.

According to the research, the bancassurance
channel is expected to increase its share of total German life
insurance written premiums to 29.5% in 2016, compared to 21.7% in
2011.

This will be boosted by initiatives from
German life insurance companies to distribute more life insurance
policies through bank branches.

The rising number of internet banking
customers and the focus of banks on increasing their fee-based
income by promoting the sale of financial products – such as life
insurance – is further expected to boost bancassurance.

In addition, the German government’s
initiative to make some insurance policies mandatory has also
popularised life insurance through the provision of tax
benefits.

Competitive landscape

The German life insurance segment is highly
competitive, with more than 115 companies

– both domestic and foreign – active in the
country.

The largest German life insurance company is
domestic insurer Allianz Leben, which held the largest market share
in 2010 with 17.7% of the total life insurance written
premiums.

To maintain its dominant position in the life
insurance segment, Allianz Leben is focusing on new product
innovations, including guarantees, notes the report.

Zürich Deutscher Herold Leben is the
second-largest life insurance company, with 5.3% of the total life
insurance written premiums, followed closely by Aachen-Münchener
Leben, with a 5.2% share in 2010.

There are strong growth opportunities in the
German pension and endowment life insurance categories,
particularly as a result of the country’s expanding ageing
population.

Leading life insurance companies are, as a
result, focusing on new product innovations, especially in the
pension and retirement product categories.

Foreign companies operating in the life
insurance segment are required to operate through joint ventures
with domestic insurers in order to comply with Germany’s insurance
regulations.

Multinational companies operating in Germany
are also improving their revenues by distributing their products
through direct marketing and bancassurance, which has the potential
to reach a wide customer base through the country’s large network
of bank branches.

Most leading life insurance companies have an
exclusive bancassurance partner.

For example, Dresdner Bank has partnered with
Allianz insurance, while Volksbanken has partnered with R+V
insurance, and HVB has partnered with ERGO insurance.

 

Overall insurance company
investments by type in Germany during 2011

 

 

 

 

 

 

 

 

 

 

Fraud and crime

In terms of fraud and crime, the German life
insurance segment lost €349m to fraudulent claims in 2007.

This value increased to €354m (US$490.0
million) in 2011, after registering a CAGR of 0.3% during
2007-2011.

The amount of claims lost to frauds and crimes
is expected to be €313m in 2016, after decreasing at a CAGR of
-2.4% over the forecast period.

The total assets for German life insurance
grew in value from €1.3trn in 2007 to €1.33 trn (US$1.85trn) in
2011, at a CAGR of 0.5% during the report’s review period.

Meanwhile, the total investment income for the
German life insurance segment decreased from €32.5bn (US$44.54bn )
in 2007 to €29.8bn in 2011, at a CAGR of -2.1% over the report’s
2007-2011 review period.

Regulatory landscape

The German life insurance segment is regulated
by the Federal Financial Supervisory Authority (BaFin).

Since the establishment of BaFin in 2002,
there have been several reforms in the German insurance
industry.

Several insurance regulations were amended
during the review period to increase the accountability of German
insurance companies and ensure policy compliance with international
standards.

The life insurance regulatory environment is
expected to become more stringent with new proposals by BaFin.

For example, the German government is seeking
to implement Solvency II norms to ensure consistency with EU
insurance regulations, which will increase the insurance industry’s
minimum capital requirements.

With the implementation of these norms, the
report explains that insurance companies will need to change their
calculation of solvency capital, risk processes and governance, and
publication requirements.

It adds that most life insurance companies in
Germany will, therefore, need to ensure that they maintain more
minimum capital reserves in order to meet the new
financialstability standards issued in the Solvency II norms.

 

 

 

 

 

 

 

 

 

 

The report, Life Insurance in Germany, key
trends and opportunities to 2016, is the result of extensive
research into the life insurance segment in Germany, covering the
market dynamics and competitive landscape.

It provides insights on the market size and
forecast of the life insurance segment and product categories
including individual life and group life insurance.

The report also provides an overview of the
leading companies in the life insurance segment along with details
of their strategic initiatives.

For more information about Life Insurance
in Germany, key trends and opportunities to 2016, contact the
Insurance Intelligence Center on +44 (0)20 7406 6596 or
info@insurance-ic.com