The German unit of Axa, the French insurance giant, has canceled 17,500 accident insurance policies that include pensions because low interest rates have made the policies too expensive for the insurer. As a rule, accident insurance policies can be canceled by both sides, but insurers rarely do so, and, up until now, never because of low interest rates.
The product, known as Unfall-Kombirente (Combined Accident Pension), is a scaled-down version of disability insurance and was only sold between 2006 and 2010. “There’s a danger that this could turn into a trend,” said Peter Grieble, an insurance expert at the consumer advice center for the state of Baden-Württemberg. “Axa is effectively admitting that it got its calculations wrong with this policy.”
Axa told customers the costs of the product had risen sharply each year due to advances in medicine and low interest rates. It said it could therefore no longer “maintain the promised services in this policy.” Not all of the policies have been canceled and Axa said it had exempted customers who were 58 and over in 2017, as well as people who were already receiving an accident-related pension.
The company is now offering a similar, presumably more expensive, product.
Many accident pension policies cannot be canceled as a rule. But, in cases where those clauses exist, companies should have made customers aware of that fact before they signed. People should opt for insurers that waive their right to cancel, Mr. Grieble said.
Accident pension policies aren’t Axa Germany’s only headache. The company, along with other insurers, has offloaded some unprofitable life insurance portfolios to financial services administrators. Low interest rates have left Axa Germany struggling to pay guaranteed returns.
Against a background of tighter European capital rules, many life insurers have opted to offload these holdings to so-called “runoff” specialists that acquire great numbers of policies and hold them until expiry, aiming to turn a profit by cutting administrative costs.
Carsten Herz covers insurance and asset management for Handelsblatt out of Frankfurt. Anke Rezmer covers the investment fund industry for Handelsblatt out of Frankfurt. David Crossland adapted this story into English for Handelsblatt Global. To contact the authors: [email protected], [email protected].