Finma criticizes the practice of selling life insurance

Finma, the Swiss Financial Market Supervisory Authority, has expressed criticism towards the insurance industry regarding the sale of life insurance. According to Finma’s analysis of the market, there is a lack of transparency and insufficient information provided to customers when it comes to taking out life insurance policies. Furthermore, the insurance companies often make overly optimistic promises that they cannot fulfill. Finma has conducted on-site inspections at larger providers and found that more than 90 percent of the sample calculations for life insurance transactions showed overly optimistic yield developments. In response to these findings, Finma is calling for increased oversight and transparency, expecting insurance companies to provide potential policyholders with a more realistic basis for decision-making.

Finma criticizes the practice of selling life insurance

The Swiss Financial Market Supervisory Authority (Finma) has expressed criticism towards the insurance industry regarding the sale of life insurance. According to Finma, there is a lack of transparency in the sale of life insurance policies, and insurance companies often make promises that they cannot fulfill. Finma conducted a thorough analysis of the market and found that the information provided to customers is often insufficient. The authority also conducted on-site inspections at larger insurance providers to gather more insights.

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Lack of transparency

One of the main issues identified by Finma is the lack of transparency in the sale of life insurance policies. Customers often do not have access to the necessary information to make informed decisions. Finma found that the information provided to customers is often incomplete or misleading, making it difficult for them to understand the terms and conditions of their policies. This lack of transparency creates a knowledge gap between the insurance companies and the policyholders, leading to potential conflicts in the future.

Promises that cannot be kept

Another concern raised by Finma is that insurance companies often make promises to customers that they cannot keep. This can include promises related to the returns on the policy or the coverage provided. Finma’s analysis found that many of the promises made by insurance companies were overly optimistic and did not accurately reflect the actual performance of the policies.

Customers who are misled by these promises may find themselves in a difficult situation when their policy does not perform as expected. Finma believes that insurance companies should be more cautious in making promises to customers and should ensure that the information provided is accurate and realistic.

Insufficient information provided

Finma’s analysis of the market revealed that the information provided to customers is often insufficient. This includes information about the risks associated with the policy, as well as the potential returns. Finma believes that customers should have access to all the necessary information to make an informed decision about their life insurance policies. Without this information, customers may be exposed to risks that they are not aware of, leading to potential financial loss in the future.

Overly optimistic yield developments

One of the key findings of Finma’s analysis is that the sample calculations provided by insurance companies often showed overly optimistic yield developments. These sample calculations are important for customers to assess the potential risks and returns of their policies. However, Finma found that more than 90% of the sample calculations examined showed overly optimistic yield developments. This means that customers may have a false sense of security about the potential returns on their policies, which could lead to disappointment in the future.

Revision of the Supervisory Ordinance

In response to the issues identified in the sale of life insurance policies, Finma has revised the Supervisory Ordinance (AVO), which will come into force with certain transitional periods at the beginning of 2024. The revised AVO aims to increase transparency and accountability in the insurance industry. It includes specifications for sample calculations, which will ensure that customers receive more accurate and realistic information about the potential risks and returns of their policies.

Expectations for more transparency

With the revision of the Supervisory Ordinance, Finma expects insurance companies to provide future policyholders with a more realistic basis for decision-making. This includes providing comprehensive and accurate information about the risks and returns associated with the policies. Finma believes that increased transparency will help build trust between insurance companies and their customers, ensuring that customers can make informed decisions about their life insurance policies.

Specifications for sample calculations

One of the key changes introduced in the revised AVO is the inclusion of specifications for sample calculations. These specifications will ensure that insurance companies provide accurate and realistic sample calculations to customers. By providing customers with more realistic projections of the potential risks and returns of their policies, insurance companies can avoid misleading customers and help them make informed decisions.

Demand for a more realistic basis for decision-making

Finma’s criticism of the practice of selling life insurance policies highlights the need for a more realistic basis for decision-making. Customers should have access to all the necessary information to assess the risks and returns of their policies. Insurance companies should be transparent in their communication and avoid making promises that cannot be kept. By providing customers with accurate and realistic information, insurance companies can help customers make informed decisions about their life insurance policies.

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Increased supervisory activities

In light of the issues identified in the sale of life insurance policies, Finma has announced that it will increase its supervisory activities in this area. Finma will closely monitor insurance companies to ensure compliance with the revised AVO and to address any issues related to transparency and accountability. By increasing its supervisory activities, Finma aims to protect the interests of policyholders and maintain a fair and transparent insurance market.

Conclusion

The criticism expressed by Finma regarding the sale of life insurance policies highlights the need for increased transparency and accountability in the insurance industry. Customers should have access to all the necessary information to make informed decisions about their life insurance policies. Insurance companies should be cautious in making promises to customers and should provide accurate and realistic information about the potential risks and returns of their policies. With the revision of the Supervisory Ordinance, Finma expects insurance companies to provide a more realistic basis for decision-making and will increase its supervisory activities to ensure compliance and protect the interests of policyholders.

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