Since enactment of the Third European Union Directive in 1994–which, among other things, allows life insurance providers based in one EU country to sell products and services in any of the other 26 member nations–a number of insurers have successfully crossed borders to expand their businesses beyond their home markets.
Yet, there is still room for growth. Though life insurance markets such as the United Kingdom and France are approaching saturation, the largest European economy, Germany, still offers opportunities for further market penetration and growth, as highlighted in the chart.
Two major factors underpin the attractiveness of the German life insurance market for international investment.
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The German life insurance market has grown steadily in recent years and offers a wide range of products that satisfy basic customer needs. The German consumer of insurance products is knowledgeable and discriminating. Life insurance products are now used as investment and savings vehicles as well as for financial protection, providing payments in case of death, disability, longevity and illness.
Future growth in the life and pensions market will be boosted through a combination of inheritance transfers and maturing savings contracts that need to be reinvested over the next 5 years–by some estimates, maturing contracts will total about EUR450 billion. Although many insurers recognize maturing contracts as a good source for increasing their new business, efforts to retain these monies have had limited success. Only 11% of maturing contracts are now being reinvested with the same provider; the vast majority are either placed into alternative investments or with a different provider.
Over the next few decades, a significant percentage of Germans will reach retirement age. Currently, state pensions represent around 72% of the average net income of pensioners, compared to 19% from private savings and 4% from occupational pensions. Consequently, because of the pressures these expenses are exerting on national and state budgets, the federal government introduced pension reforms to reduce the level of state support and encourage tax-favored private pensions. Because this will probably lead to an increased emphasis on personal responsibility for financial, healthcare, and retirement investment management, it is not unreasonable to expect annuities and unit-linked products to grow in popularity in the coming years.