Limitations of the framework to address value for money risk in the European unit-linked market

Abstract

Savings in the unit-linked products are increasing across the European Union member-states. In environment of low interest rates and increased capital requirements for traditional life insurance products the supply of the unit-linked insurances is rapidly growing. The last year sold unit-linked life insurances in Bulgaria are four times more than five years earlier.
 Unit-linked life insurance consists of insurance part and asset management part. The investment result from the insurance is usually born by the insured. The investment performance is related to the performance of the financial markets.
 The growing acceptance of unit-linked products are posing questions of adequate information to consumers, the balance between the price and the benefits of the products, the related risks and the proper rights of the insured.
 All these specifics raise questions whether the insured are well informed when buying the insurance and whether the client’s needs and preferences are matched with the proposed product. These questions lead to the asking what value is receiving the client for the money spent – value for money effect and risks.
 In the European Union there is no common framework on the assessment of the effectiveness of the product. The European Insurance and Occupational Pensions Authority is proposing framework to address value for money risk in the European unit-linked market.
 The study finds out that the design of the product is of great importance for the value for money effect for the insured. The life insurance activity in the European Union follows strict and profound regulations both for the life insurance companies and for the life insurance products. That is why additional framework is not the most necessary step. The European Union needs Savings plan that encourages saving in the member states, increases the insurance coverage, increases the accumulated assets and improves the efficiency of the personal savings and investment products.