[ad_1]
Photo by Judita Grigelyts (V)
The client of an investment life insurance company operating in Lithuania does not always manage in such a way as to achieve the best result for his clients.
This was demonstrated by research carried out by the Bank of Lithuania (LB), which will show not only the lack of business activity or deception regarding customers.
Investment practice of investment life insurance companies of 8 insurance companies was examined, results and taxes of the largest investment assets by assets were examined.
However, the Bank of Lithuania will not be quick to impose fines for the time being and will be limited to broader investment results and corporate tax evasion.
Prakiinja’s own funds
In particular, it has been established that the process of selecting investment objects to form an investment direction in insurance companies is not timely.
According to the Bank of Lithuania, insurance companies must establish criteria for selecting funds and other investment instruments in which funds are invested, but it has been noted that there are potential conflicts of interest in this area.
For example, when choosing where to invest, insurance companies prefer certain partners or companies in the same group of companies, avoid changing investment directions, which is bad, and do not seek to offer the client a cheaper investment alternative. Companies should assess these situations as potentially causing conflicts of interest and investment practices should be modified accordingly, according to the Bank of Lithuania report.
According to the Bank of Lithuania, the funds of that search group should be selected only if they do not deduct from the funds managed by other managers according to performance, applicable taxes, quality and other objective criteria established by the company and the company should have the main indication for said selection.
For example, when evaluating the suitability of a fund management company or a fund manager, Compensa Life also takes into account the useful aspects of cooperation for the company, says the Bank of Lithuania.
Insurers belonging to international groups of companies also actively invest in the funds managed by the group of companies, for example, in the case of SEB Life, the funds of the SEB group of companies represent up to 88% of all investment funds , according to the Bank of Lithuania.
The analysis of investment life insurance management administered by Aviva in Lithuania shows that the company invests only in 4 investment fund management companies, one of which belongs to the Aviva Group. According to the Bank of Lithuania, the small number of Danish partners allows companies to streamline investment management processes and, in individual cases, change corporate costs, which can present a potential risk of conflict of interest.
There was confusion and ignore the ETF
The Insurance Law stipulates that an insurer cannot charge an investment management fee if it does not manage the investment policy itself, according to the Bank of Lithuania. However, the information provided on these companies’ websites is generally not for adults, whether or not their search is directed by instructions, making it difficult for customers to understand whether the company is entitled to administration fees. of investments.
The information provided to the insurance company’s customers does not include what fees are included in the unit value calculation. Insurance companies apply not only fees related to investment management, but also other deductions, such as the administration of contracts, which change the invested assets, on which the results of the insurance companies are not even mentioned, the Bank claims. from Lithuania.
The study also noted that unit-linked life insurance providers tend to ignore passive strategy exchange-traded funds (ETFs), whose management fees are generally lower than for actively managed funds.
Only half of insurance companies invest in ETFs, whose management fees are typically lower than those of actively managed funds. For the funds reviewed in the analysis, the fees for the passive strategy fund were more than half that of the active strategy investment fund, says the Bank of Lithuania.
Show predicted results
According to the Bank of Lithuania, almost all life insurance companies publish the results of their investments on their websites, but it is difficult for the average consumer, who has no education or work experience related to the economy or finances, to understand these results.
For example, when announcing investment results for a period greater than one year, some companies report only the absolute results for the entire selected period (5 years), and not the annual return, according to the Bank of Lithuania.
According to the central bank, the projected investment results shown to clients are in many cases overly optimistic and do not correspond to the investment risk assumed by clients. It is recommended that insurance companies use the longest possible data period (preferably at least 15 years) when selecting interest rates for different scenarios. If the investment management does not have such historical data, data from a benchmark or other similar instrument may be used, the supervisor will decide.
Client investment results do not matter
The Bank of Lithuania states that to achieve the best result for their clients, insurance companies must not only select the best funds, but also constantly monitor their results. However, the work is so rejected that not all companies have a continuous monitoring process.
For example, Bonum Publicum has indicated that the investment monitoring process is carried out by the managing company to which investment management has been delegated, and search monitoring includes only the financial data verifications required for preparation. of the financial statements, declares the Bank of Lithuania.
According to the Bank of Lithuania, in the case of Bonum Publicum, the fund’s results are not even periodically evaluated. But in the case of the EU and other companies (ERGO Life, Compensa Life, Swedbank Life), the analysis of the results, although planned, does not specify what is a manifestly bad result and in which case the company should consider changing the fund. .
The long-term practice of companies is that changes in investment funds are extremely rare and are conditional on more than three changes initiated by the fund (formation of a fund, merger, etc.) or optimization of the investment flow ( small and unpopular addresses).
The Lithuanian market is not a priority.
According to the Bank of Lithuania, Swedbank Life and Mandatum Life operate as branches in Lithuania, while the points of sale operate in all the Baltic countries (Swedbank Life) or in the Baltic countries and Finland (Mandatum Life).
The company’s service baskets at the company level are said to be being developed not only for the Lithuanian market, but for the entire Baltic or Baltic and Finnish market.
The branches submitted high-level group documents on investment management and procedures applied to the branches, as well as separate process descriptions, but do not have more detailed information at the branch level, as these functions are not performed at the branch level.
What will the Bank of Lithuania do?
To encourage insurers to create greater added value for the consumer, i. and. In order to change the taxes applied to the life insurance products linked to the unit, to better manage investment directions and achieve higher investment returns, the Bank of Lithuania will publish a comparative deduction and analysis of results on its site web this year.
The situation in the insurance sector in the provision of unit-linked life insurance services to clients is improving, but there is still much room for improvement. We see room for insurers to change management fees and strive for higher profits for clients. Therefore, we will continue to constantly strive to clarify the practice of selling and managing investment insurance products to create greater added value for the Lithuanian population, says Jekaterina Govina, director of the Bank of Lithuania’s Supervision Service.
Deimtmeio gros
The Bank of Lithuania notes that the investment mix achieved by insurance companies varies greatly.
The low-risk investment divisions analyzed for 10 years (from June 30, 2009 to June 30, 2019) ran from 1.1% to 5.83% gr.
The analyzed medium-risk investment trends are higher from 2.56% to 7.68%, while the high-risk investment directions ranged from 4.46% to 11.27% per year.
All of ALC’s research can be found in AI.
Rayti commented
[ad_2]
