The new federal government must take care of private old age insurance. The SPD, the Greens and the FDP are considering a state-organized stock savings plan that will get by at low cost and thus supplement legal retirement at a reasonable price. It would be a huge project with many contingencies.
At the same time, however, a future government will also have to deal with what already exists in terms of private pensions: this is mainly life insurance. Better regulation of distribution channels and high costs are urgently needed here. At first glance, life insurance is a huge success. There are currently 86 million contracts for 83 million inhabitants. Statistically, every adult has 1.2 life insurance policies.
They are used to secure mortgages for building a house or, like families, against the consequences of death. Most importantly, life insurance is the preferred savings product for Germans. Customers pay 103 billion euros for contributions each year, 84 billion euros for services.
So everything is fine? Not at all. In reality, insurers have significant problems. They suffer from the low interest rates and the high guarantees they gave over the past decades and which still work. And they suffer from an anachronistic sales system that often leads to misguided advice.
The commission can be five percent or more
Life insurance policies are mainly sold by agents, brokers, sales organizations such as DVAG or MLP, as well as banks and savings banks. They are mainly interested in one thing: the commission. When purchasing life insurance, customers typically commit to paying premiums for many years. The commission can be five percent or more of the total amount. Several thousand euros are due for a single policy – which the client pays with his premiums because the commission is written on his contract.
In 2020, German life insurers paid 7.5 billion euros in acquisition costs, most of which are commissions. This is the official figure, but large sums of money are also pouring in in the form of computer grants or reimbursements of processing costs. Added to this are administrative costs of two billion euros.
The Greens call for the abolition of advisory commissions for small investors. You want to strengthen advice against hourly fees. You’re in good company: the Netherlands, most of the Nordic countries and the UK have banned pension commissions completely. In the SPD, there is support for a limit on commissions, a so-called cap. In the last legislature, such a project by Finance Minister Olaf Scholz failed due to resistance from the Union.
Only the FDP wants to stick to the current system. It’s strange. Because it has almost nothing to do with the free market economy and consumers’ free choice when a well-trained broker meets a client inexperienced in insurance and then makes a decision for his or her entire life.
The traffic lights will find a compromise. Everything is unlikely to stay as it is. But it’s also unlikely that commissions will be eliminated altogether. It all comes down to a cap on payments. And by the way, the future government would also be doing a number of insurance chiefs a great service. For some time now, they have felt they have been blackmailed by large distributors as well as banks and savings banks to pay increasingly higher commissions to the detriment of customers. Of course, they would never admit it in public.
Limiting commissions is not enough. A future government must also give the financial regulator Bafin the legal and financial means to better control the sector and its distribution channels. And it must abolish the absurd rule that insurance intermediaries are controlled by local chambers of commerce and industry, in practice not at all. Sales supervision is the responsibility of Bafin.