Every month, we help you keep up with the Belgian and Luxembourg insurance markets.

1. Partnership 
2. Product 
3. Market 
4. Financial results 
5. Legislation 

Partnership

In Luxembourg, Luxhub and Vermeg, a software specialist, join forces to launch Custodix Hub. Custodix Hub is a solution created to collect data from depository banks so that life insurers can more easily organize them. (Check out their presentation) 

The main reason for this partnership is the cost of data management for life insurance companies, especially in the context of digital evolution. Indeed, data becoming increasingly sophisticated and the ability to process different formats are main factors of rise in costs.

Custodix Hub allows the automation of processes and the structuration of data coming from depository banks. These data, such as movements in securities and securities positions, are processed in specific formats, proper to banks, which makes it difficult for life insurance companies to process.

Custodix Hub, therefore, provides an opportunity to facilitate the process of a format change for insurers.

Product

AXA has introduced a new service as part of its group hospital insurance: a second medical opinion. This second opinion includes an online consultation with a doctor and a physical consultation in a hospital.

To request this second opinion, the policyholder will be accompanied by a personal assistant throughout the process.

This service is launched to meet the needs of policyholders who are diagnosed with a serious illness or who have to undergo a major operation. In addition, this service is a complement to the range of services offered for health insurance.

Market

• AG College: new training program by AG Insurance
• Natural disasters: single compensation scheme to be set up
• Fewer requests from motorists submitted to the Pricing Agency
• AXA’s digitalisation programme and climate commitment

AG College: new training program by AG Insurance

AG launched a new training program called AG College. The objective? Training AG’s own talent in order to meet the recruitment challenges of the market.

Concretely, the 6-months program includes technical trainings, a first evaluation after 3 months and a final evaluation. If candidates successfully pass the final evaluation, they get a permanent contract as a file administrator for car insurance or health care.

AG College, a first in the sector, has been created in partnership with the AG’s HR teams, AG Business Schools and Fopas.

Natural disasters: single compensation scheme to be set up

By the end of 2022, 97% of the files concerning the victims of the floods that hit Belgium in 2021 had been completed.

However, the amount of the capped intervention to which insurers have to limit themselves in order to maintain their solvency is considered insufficient. The insurers have therefore decided, in consultation with the authorities, to set up a single compensation scheme to ensure the compensation of policyholders who are victims of future natural disasters.

Hilde Vernaillen, President of Assuralia, stresses that without a single compensation scheme applicable to the whole country, it is impossible for insurers to cover the risk properly and to reinsure it at a decent price. Therefore, a harmonized system is necessary to avoid a solvency problem for insurers or higher premiums for consumers.

Fewer requests from motorists submitted to the Pricing Agency

This year, only 33,255 applications for motor insurance from ‘uninsurable’ motorists were submitted to the Pricing Agency, a decrease of 6.4% compared to 2021.

It is worth noting that the number of applications increases each year, but the rate of increase is lower each time.

In 2022, 24,036 contracts were agreed with insurance companies.

AXA’s digitalisation programme and climate commitment

AXA Belgium is a leading insurer when it comes to developing efficient digital customer experiences and its digitalization strategy does not end there. Indeed, 73% of the customer experience is digitalised and takes place on MyAXA, which has seen a 50% increase in the number of users. MyAXA allows consumers to report a claim directly via the application.

Additionally, in the context of protection against climate risks, AXA has also introduced the Eco Repair Score, a tool that defines the environmental impact of repairing damaged vehicles. In addition, the AXA Research Fund as well as the River Cleanup action and the Climate School are other tools deployed by the insurer to display its commitment to the climate.

Financial results

• KBC 
• Allianz Benelux 
• Ageas 
• AXA

KBC

As regards its non-life insurance activity, KBC reported an amount of 204 million euros for its technical income. This amount represents an increase of 4% compared to 2021. Earned premiums remained stable compared to the previous quarter. In addition, the amount of reinsurance transferred decreased and technical expenses increased.

Regarding life insurance, technical income reached 16 million euros, an increase of 6 million compared to the previous year. The sale of life insurance products, including branch 23 products and products with a guaranteed interest rate, also increased by 34% compared to 2021.

In addition, KBC also announced its partnership with PetExpert to offer insurance for our dogs and cats.

Allianz Benelux

Allianz Benelux also published its results for the previous year. Its net result amounted to 217 million, an increase compared to 2021.

Non-life premium income reached 1,582 million euros, an increase of 2.4%. However, premium income on the life segment fell by 18.4% to 1,864 million euros.

The operating result of its non-life segment increased compared to 2021, reaching 185.1 million euros. On the life segment, the result also increased to 160.1 million euros, partly due to a higher investment margin.

Ageas

It is now Ageas‘ turn to publish its results. The Belgian insurer reports a net result of 1.01 billion, an increase of 20% compared to 2021.

This net result is explained by the purchase of the Fresh bonds and RPN(i) securities, two financial securities inherited from Fortis Bank. However, analysts advise to exclude these as they do not provide any information on the performance of Ageas’ activities. For instance, if the profits generated by the NPRs are not taken into account, the net result would be equivalent to 871 million.

On the life segment, premium income increased by 1%, driven by good results in the Asian market. The European markets showed a decline in life business.

On the non-life segment, premium income increased by 4%, reflecting growth in all markets.

AXA

Unlike its competitors, AXA‘s turnover increased but its net income decreased by 11%.

Indeed, its turnover reached 102.3 billion euros. However, its net income fell by 11%, due to the unfavourable situation of the financial markets. At group level, revenues for the P&C and health businesses increased by 2% and 16% respectively.

In Belgium, turnover increased by 3% to reach 3.58 billion euros. The health business in particular stood out, with a 9% increase, followed by the non-life business, which rose by 3%.

Results for life insurance stagnated, due to the change in legislation for the pension of the self-employed.

Legislation

• The EESC opinion on a new liability regime concerning AI
• Draft law on fire insurance linked to a mortgage loan
• Workmen’s compensation : new draft law

The EESC opinion on a new liability regime concerning AI

As AI becomes more and more central to the activities of companies, they are more prone to damage caused by it. The European Commission has drafted a proposal for a law on this issue, on which the EESC has expressed an opinion.

Both agree not to choose no-fault liability or compulsory insurance. However, the EESC would like to provide legal certainty to encourage companies to use AI in their business. Civil liability guarantees could be called upon in this respect.

In addition, compensation for companies that incur damage due to the use of AI will not be harmonised at a national level. The EESC, supported by the social partners, civil society and consumers, is therefore awaiting a response from the Commission in this respect.

Draft law on fire insurance linked to a mortgage loan

In order to grant a mortgage loan, the bank often encourages its customers to take out fire insurance or an outstanding balance. This practice allows for a lower interest rate for the customers.

However, there have been complaints from customers who could not change their fire insurance to a more attractive offer from a competitor without seeing the interest rate on their loan increase.

The Minister for the Economy has proposed that this practice should stop, allowing consumers to change their fire insurance after 2 years without losing the interest rate set at the time of purchase.

Workmen’s compensation: new draft law

In 2021, the number of claims for workers’ compensation refused by insurance companies was 14,8%. But, if an insurance company refuses to pay a compensation, it must report this to Fedris, which may then decide to pursue an investigation.

In 2021, only 3,609 investigations were opened and 18,199 refusals were not checked.  The CD&V reports that only one-sixth of the refusals were checked by Fedris, which explains why many victims’ files were wrongly refused.

The CD&V, therefore, wants Fedris to conduct an investigation into all compensation files that have been refused by insurers. If the insurer contests, it will have to pay a fee of €100 to Fedris.

In addition, the CD&V wants victims of such accidents to be better informed. According to the political party, scheme for married couples and legal cohabitants should be harmonized and actions should be undertaken to improve vulnerable position of temporary workers.

Sources:

• Paperjam, Les données dépositaires, clés de voûte de l’assurance-vie en LPS
• Assuropolis, AG lance l’« AG College », un programme de formation inclusif pour les personnes sans diplôme de l’enseignement supérieur 
• Assuropolis, Inondations : presque toutes les victimes de la catastrophe ont été indemnisées. L’actuel système d’indemnisation prévu par la loi est toutefois insuffisant et trop complexe.
• Assuropolis, KBC : Résultats 4^ème trimestre 2022 en assurance
• Assuropolis, KBC assure désormais aussi les chiens et les chats
• Assuropolis, le CESE se prononce au sujet d’un nouveau régime de responsabilité pour l’IA
• Assuropolis, Moins d’automobilistes « non assurables » ont fait appel au Bureau de tarification
• Assuropolis, AXA : Second avis médical
• Assuropolis, Allianz Benelux clôture 2022 avec un résultat opérationnel de 345,2 millions d’euros
• Assuropolis, Les assurances couplés à un crédit hypothécaire dans le viseur de Ministre Dermagne
• L’Echo, Ageas dépasse le milliard de bénéfices et augmente son dividende
• L’Echo, Axa : les bénéfices baissent, les dividendes augmentent
• Assuropolis, AXA poursuit son programme de digitalisation et son engagement dans la protection contre les risques climatiques
• Assuropolis, CD&V : proposition de loi pour mieux contrôler les accidents du travail refusés par les compagnies d’assurance.

Estimated at 10,7% in 2022 in the Eurozone, the inflation unsurprisingly hits the European insurance market for several months. The role of actuaries at different levels, such as costs, product development, covers, evaluation of the balance sheet and measurement of capital requirements, is a key element that insurance companies need to consider to remain competitive.

Impacts of inflation on the insurance market

As many other actors, insurers do need to deal with inflation and its consequences. The decrease in purchasing power, the increase in claim costs in P&C insurance and in medical covers, and the loss of market assets are all examples of negative short-term consequences that need to be controlled. On the contrary, the rise in interest rates, for instance, provides an active return in the long term: indeed, this effect allows bonds to be redeemed at higher rates. Regarding savings products with a secured interest rate, they are advantageous for both the investor and the insurer, who can obtain a higher bond yield.

Moreover, on the mid-term, inflation increases risk awareness, influencing customers in taking out more advantageous life insurance products, such as units of account. When taking out these products, money is invested in different types of assets that will adjust to inflation, such as real estate. The insurers’ life insurance taxation framework will therefore generate increasing cash flows.

Lastly, the impacts of a changing monetary policy will have consequences on technical provisions, capital requirements and related monitoring tools. Indeed, current methods used do not estimate realistic technical provisions because they do not adapt to inflation, as these methods have not been adjusted for more than twenty years. In addition, buying life insurance policies, immediate consequence of the decrease in purchasing power and the increase in interest rates, influences these estimates.

Regarding capital requirements, it is recommended to review inflation-related parameters of internal model to meet the SCR. It should be noted that inflation also affects risk management policies and models.

Globally, we can notice that inflation influences positively and negatively the insurance market.

Undertaking actions at different levels

In addition to the above-mentioned consequences, the inflationary pressure urges insurers to look at their product and reserving strategies.

A concrete example concerns the competitiveness of insurance companies in relation to offered guarantees. Understanding how these guarantees are calculated and determining their level in new products will therefore be of primary importance. A solution to determine their level is to reduce underwriting risk by considering even more the policyholder’s experience, or by asking policyholders if their needs have changed and if some insurance policies can be brought together. Another solution may lie with the policyholder if he·she is willing to change insurance policies regularly.

As a result, understanding and monitoring the market as it changes is a required behavior in a future and uncertain socioeconomic context.

As far as pricing is concerned, inflation also affects projections of future premiums. The increase of claims costs and other risks (i.e. climate-related) are factors to consider. However, inflation does not influence life and non-life insurance similarly. On the non-life hand, the IABE has already noticed that some non-life insurance premiums are undervalued of 8%. Nevertheless, short-term contracts allow to adapt more easily to the influence of inflation. In this respect, inflation has a forward-looking effect. The situation is different for longer-term life insurance contracts. A new challenge is to adequately price savings products with a guaranteed interest rate to yield a return on invested premiums. Inflation has therefore a retrospective effect on the life hand.

Moreover, the impact of political decisions when pricing productsshould be considered. Bruno Lemaire, French Minister of Economy, for instance, decided to limit the insurance index so that it does not increase compared to the consumer price index. However, it is necessary to be extremely careful when adapting premiums, as regulatory instances require a substantiated justification.

If we look at the solvency of insurance companies, evidence shows that inflation affects both life and non-life business. In such an inflationary context, reinsurance may be of useful help for insurers, more specifically by discussing with experts how to set up adequate reserves. Moreover, the APREF thinks that the current economic situation, and the possible stagflation, could influence prices and the scope of reinsurance cover. Therefore, there is a need for insurers to engage and interact more with reinsurers.

“Understanding and monitoring the market as it changes is a required behavior in a future and uncertain socioeconomic context.”

Opportunities available to actuaries

Although we have discussed the impacts of inflation on the industry and the associated changes to be adopted, it is needless to say that the core business of actuaries will also be subject to adaptations, regardless of the degree of implication in the value chain.

With the increase in costs of claims coming from the rise in raw materials and automobile parts, it matters to reconsider how insurers deal with claims. Actuaries working in this area may tap into other budgets and choose a new method to reprice products after inflation. The insurance company may also change its pricing policy by adopting a competitive strategy regarding what is being done in the market or simply by deciding how many product lines to increase to maintain a certain number of policyholders.

Regarding non-life pricing, it is recommended to use extrapolation techniques which already take inflation into account. Adapting previous cash flows to current inflation in models is another method that can be used. On the whole, considering past figures as good indicators of future behaviors is also interesting. Another approach consists in using the pricing of inflation swaps and index-linked bonds to better evaluate future inflation.

If we tackle the ALM strategy, another necessary step is to model inflation. Specific models can link inflation by rates. Indeed, using LMM or Vasicek models allows to model real and nominal rates in order to determine inflation. Besides, simultaneously determining real and nominal rates and inflation is also possible via autoregressive models such as Jarrow-Yildirim model. Lastly, using inflation swaps that swap fluctuating inflation for fixed inflation allows for more accurate predictions as it reduces future volatility.

Additionally, although there is an influence of inflation on liabilities, especially on products, asset coverage is still too poor. Some elements could be used as natural coverage. For instance, inflation-linked products, interest-rate products and equities with a strong pricing power could be the solution, even if these are scarce products. Concerning equities, further reflection is required as the classification of risks is not as clear as for credit risk and its financial ratings. It is therefore necessary to catch risk factors that identify  equities more prone to inflation. However, paying attention to these factors can allow for a considerable evolution and better visibility on the market in such a situation.

Lastly, a global reflection on how reserves can be increased and how this increase can be established should be encouraged. Similarly to the adaptation of insurance products premiums, reserving is a key matter to face inflation, even if inflation were to weaken.

“It seems natural to consider that the market will still be confronted with these conditions in the future, especially with the already evident consequences of global warming.”

Final words

Inflation and the economic and social chaos caused are not likely to leave us any time soon. Each actor in the financial sector must take it into account to improve the comfort of living of citizens and the perennity of companies. As an actuary, adapting his/her strategic vision and implementing changes in traditional methods used in daily work are actions that must be taken to meet these objectives.

Concretely, it seems natural to consider that the market will still be confronted with these conditions in the future, especially with the already evident consequences of global warming. Actuaries will need to deal more and more with these situations which cause rates volatility and instability on assets. This is what the European Actuarial Association remind us: “As actuaries, we have taken too much time thinking that inflation belonged to the past. After all, the history taught us that …”

Sources

• Institut des actuaires, Le retour de l’inflation, un défi pour les actuaires.
• L’Echo, Les primes d’assurance sont sous-estimées de 8%
• Corum, Le retour de l’inflation, quel impact sur le marché de l’assurance vie ?
• Le Figaro, L’inflation va peser sur le marché de l’assurance, selon une étude de Swiss Re
• L’APREF, Note inflation et réassurance Non-Vie
• You talk insurance, What is the impact of high inflation on insurance
• The European Actuary Magazine, Inflation and insurers, p.18
• EIOPA, Trying times and their effect on insurers
• Institut des actuaires, Inflation : Quels risques pour le secteur de l’assurance ? Quelle stratégie ALM ?
• EIOPA, EIOPA publishes supervisory statement on inflation