Germans like to insure their old age with life insurance, even if the return is meager. New European rules could exacerbate this problem: this Wednesday, the Commission will present in Brussels a legislative proposal aimed at updating the supervisory rules of European insurers. The Süddeutsche Zeitung has a 102-page draft directive, and it contains explosive changes. Regulation must be strengthened as regards the capital that insurers must reserve for their policies. In particular, it would make the offer of long-term life insurance more expensive – policies so popular in Germany would become even less attractive to consumers.
The Commission sees this danger and therefore proposes to introduce these rules gradually by 2032 in order to “avoid a shock on the market”, as specified in the draft directive. More precisely, this is what is called the extrapolation of the yield curve. It’s as complicated as it sounds, but in fact it means that when doing calculations for their policies, insurers have to assume that interest rates will stay as low as they are now. This means that companies can only offer consumers bad terms. The German Insurance Industry Association is alarmed: When the European insurance regulator EIPOA proposed this change, the lobby group vehemently warned against it. Nevertheless, the innovation is now in the bill.
The old supervisory rules have been in force since 2016; they are called “Solvency II”. After five years, the Commission considers that a review is necessary. After submission, the European Parliament and the Council of Ministers, the decision-making body of the Member States, must deal with the draft directive.
In addition to the controversial tightening, the proposal also provides for relief. A new category of insurance companies is introduced: providers with low risk business models. These should be regulated less severely. In addition, regulators may in the future treat insurers with more leniency if companies invest their money in ecological or social investments. EU supervisory authority EIOPA in Frankfurt is due to present an investigation by 2023 to determine whether such benefits for green and social investments would be justified.
In the European Parliament, ideas are already meeting criticism: CSU MEP Markus Ferber warns that the financial supervisory authority must always be risk-based. More lax requirements for green insurers are “in the wrong direction,” said the spokesperson for economic policy for the EPP-Christian Democrat group. He is worried about the tightening of life insurance policies. If the commission rescinds that, it would be “practically the death penalty” for long-term policies.