Insurers face meltdown in life policy sector

The liquidation of savings-linked life insurance policies rose 20 percent in 2011, exerting additional pressure on the reserves of cash-strapped insurers.

According to data compiled by the Association of Insurance Companies of Greece (EAEE), early buyouts totaled 813.1 million euros last year, which represents more than 55 percent of insurers? outlays.

The trend is seen as a clear indication of the economic stringency which an increasing number of households are facing, leading them to either stop financing their policies or liquidate them in order to cover basic needs.

The EAEE figures show that of the sum of 813.1 million euros, 438.4 million was paid out as compensation for savings-linked and pension programs. These were mostly policies covering the insured against loss of life or incapacitation. Such early buyouts registered a 40 percent rise in 2011.

Early cash-ins of investment policies — the second-largest category — rose 12.6 percent to 277.1 million in 2011, from 246.4 million in 2010. These liquidations have been prompted by the dramatic fall in the prices of all forms of securities as a large number of such policy programs invest in domestic shares and bonds.

As regards group policies, the picture improved somewhat in 2011, as early cash-ins fell from 122 million in 2010 to 97.6 million in 2011.

In the present economic climate, insurers are finding it difficult to find new business to make up for the financial drain of early liquidations, which have pushed down the average duration of life insurance policies from normally more than 10 years to about five.

This means that the insured often sustain losses through the early cash-ins, as the total of premiums paid can usually be recovered after the fifth year. An average such policy for a 40-year-old for 15 years and a guaranteed lump sum of 20,000 euros would cost about 1,300 euros a year.

Besides the early cash-ins, insurers also paid out 659.1 million euros for maturing investment or term policies. If supplementary cover payouts are also taken into account, compensations totaled 1.9 billion in 2011.