A stable, well-functioning financial market for allA stable, well-functioning financial market for allFees charged by life assurance companies
The study includes the fees charged for life assurance policies in which there is a guaranteed amount of benefit. The Swedish Financial Supervisory Authority (FI) carried out a study of life assurance fees during 2001–2003. The period selected was based on a discussion with the industry whereby it was not reasonable to demand material an earlier in time.
Fees are a factor in the consumer's choice of insurer. Therefore, it is important that they reflect actual operating costs. Nor is it unusual for companies to advertise low fees as a desirable feature, which they are, provided the company has been in balance for a reasonable length of time. It is unacceptable to let fees charged be low for a protracted period without having sufficient coverage for it.
The results of the study show that during the period in question, five companies were in balance – that is, the fees they charged well reflected their operating costs. The five companies are: Gamla SEB Trygg, Länsförsäkringar Liv, Nordea Liv I, Nya SEB Trygg and Salus Ansvar Liv.
Four companies have a deficit, SPP having the largest – 1.49% relative to its insurance capital. The other companies that have a deficit are KPA Pension, Folksam Liv and AMF Pension. In mutual companies, in practice, a fee deficit must be offset by lower bonus rate. Two companies had surpluses, of them Skandia Liv having a surplus of 0.19%. The other company with a surplus is Förenade Liv. A surplus results in a higher bonus instead. Fees charged by profit-sharing life assurance companies, on the other hand, are more definitive in nature.
In this context, it should also be noted that a fee deficit related to insurance capital need not be critical to the final outcome of the insurance. During the period in question, the mutual life assurance companies studied had an average fee deficit of 9% relative to their actual operating costs. Relative to the insurance capital, however, the deficit is only 0.05%. The reason for this is that the insurance capital far exceeds the actual operating costs.
The study also focused on different branches of operation. Long-term subsidization of a certain insurance stock at the expense of another insurance stock is not acceptable in mutual life assurance. FI considers that such subsidization would contravene the principle of reasonable grounds in policies for which it still exists, and the principle of contribution in other insurance policies. This opinion is based on the assumption that this principle has not been specifically written out of the policy conditions.
During the three-year period that is the focus of the study, most companies carried on subsidization of early retirement pensions and other occupational pensions. This means that the highest fee deficits were found in segments that are under expansion. The highest degree of subsidization was maintained by LF Liv. There are reasonable explanations for parts of this substantial subsidization. One is that individual life assurance accounts for almost 75% of the insurance capital and that this sector contains insurance of long duration.
The focus on occupational pensions, however, is a new phenomenon, and costs are traditionally higher at the beginning of a period of insurance contributions than at the end. The study does not provide any indication as to whether the identified subsidization will continue over the long term. The companies were given an opportunity to explain their actions in this section – however, none of them took advantage of it.
