Unit-linked insurance more transparent – after Bank of Lithuania declares its position, consumers receive greater benefits
Most insurance undertakings operating in Lithuania and providing unit-linked insurance services considered the Bank of Lithuania’s position on the recovery of management fees (rebates). As a result, unit-linked insurance clients already benefit more and can accumulate more capital.
“Distribution of fees recovered from management companies to customers of insurance undertakings, rather than the use of these funds for the needs of insurance undertakings themselves, as well as application of lower management fees, is only one of the steps in making the unit-linked insurance practice in Lithuania more transparent. Last month, we also provided insurance undertakings with recommendations on the management of investment directions and fees, and their implementation would create even greater value for consumers,” said Jekaterina Govina, Director of the Supervision Service of the Bank of Lithuania.
Having analysed the unit-linked insurance practice last year, the Bank of Lithuania found that insurance undertakings, when investing customer assets through collective investment undertakings, recover management fees or receive discounts from their management companies, but do not distribute it to their customers and use it for their own needs. In mid-2019, the Bank of Lithuania announced its position that such practices create conditions for a conflict of interest that violates the interests of insurance undertakings’ clients and recommended that undertakings applying such practices rearrange their activities by the end of the year.
According to the Bank of Lithuania data, the majority of insurance undertakings operating in Lithuania and providing unit-linked insurance comply follow the above position. In order to ensure the consistency of their practice with this position, insurance undertakings have taken different steps: some – distributed and will distribute in the future received management fee discounts, others – transferred unit-linked insurance assets to funds intended for institutional investors, or into new funds where management fees or other similar fees are significantly lower. The consequences of these actions are identical – unit-linked insurance customers may accumulate more capital.
Two insurance companies – Compensa Life Vienna Insurance Group SE Lithuania branch and Mandatum Life Insurance Company Limited Lithuania branch – does not fully comply with the position, as management fees are still being recovered from some managers of collective investment undertakings without refunding it to their clients, yet are making efforts to change the situation in the future. This situation in these companies is due to the characteristics of the calculation of the unit value of the investment direction, which makes it more difficult to allocate the rebate management fees or their discounts to customers. Seeking to ensure even insurance market practices and equal protection of interests of insurance service customers, the Bank of Lithuania is currently taking actions to monitor, communicate and, if necessary, to influence the decisions of the aforementioned two insurers by means of statutory measures, which would enable the application of appropriate practices specified in the above mentioned position of the Bank of Lithuania.
In July 2020, the Bank of Lithuania also published the Analysis of the practice of management of investment directions for investment in life assurance and recommendations to insurers on good practice.