The European Insurance and Occupational Pensions Authority (EIOPA) published today its Costs and past performance report that analyses the costs, charges and value for money characteristics of retail investment products within EIOPA’s remit over the period 2020 to 2023.
Investment-based insurance products
Insurance-based investment products (IBIPs) showed an increase in net returns in 2023, as well as for the four-year period monitored, largely driven by the good performance of financial markets. However, the report reveals that the performance of IBIPs did not outperform inflation levels, and it varies greatly depending on the risk profile of products as well as on consumers’ investment objectives.
In 2023, unit-linked and hybrid products delivered positive net returns to policyholders. Unit-linked products with greater risk exposure achieved the highest net returns, surpassing 10% on average, compared to 6% for lower-risk products. Profit participation products also generated positive returns, although they failed to outperform inflation in 2023.
While inflationary pressures did not lead to a marked increase in IBIPs costs, these costs remain high, limiting the value for money of some products. Products with profit participation mechanisms were found to be the most cost-effective option over unit-linked or hybrid products, which showed 2.4% reduction in yield on average. Disparities in costs are observed across Member States, including at times when comparing cross-border and domestic products in some markets.
Sustainable products continued to grow in both supply and demand in 2023, with 55% of products in the sample incorporating environmental, social and governance (ESG) features. In the four-year period, sustainable equity funds outperformed their non-ESG counterparts.
Pension products
Personal pension products largely followed the trends observed in insurance-based investment products regarding positive net returns. Investors holding personal pension products with unit-linked features gained an average net return of 2.1%, while products with profit participation features delivered 1.2% over the 2020-2023 period.
Meanwhile, defined contribution schemes of Institutions for Occupational Retirement Provision (IORPs) in the EEA saw growth in active members, total assets and income ratios.
The report concludes that consumers seeking higher yields and are willing to accept higher risks could receive better returns in the long term, including for products with ESG features. Consumers seeking safer options found better value for money in profit participation products, as they showed lower costs and higher net returns than low risk unit-linked products.
Background
Insurance-based investment products (IBIPs) are insurance products that offer a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed to market fluctuations, directly or indirectly. Typical examples of IBIPs are unit-linked life insurance and profit participation life insurance.
EIOPA collected data for this report from a sample of insurance undertakings in participating Member States on the following products: unit-linked (UL), profit participation (PP), hybrid (HY), and personal pension products (PPP), which can be either IBIPs or non-IBIP. This is the inaugural exercise under the revised Costs and Past Performance data collection and methodology.
Participating insurance undertakings accounted for around 63% of the European unit-linked and profit participation markets in terms of Gross Written Premium (GWP). To reduce the reporting burden for the participating undertakings, only a selected number of product options were included in the scope.
All EEA Member States participated to the exercise except for Cyprus, Iceland and The Netherlands.