Switching from “Single-Compartment” management mode to “Multi-Compartments” management mode in life insurance: Needs & interests
Findings & Needs on the “Customer” side
Nowadays, taking out several life insurance plans has become an unavoidable reality for most policyholders for various reasons, including:
- Diversity of the purposes reserved for each plan: Preparation of purchase of a main or secondary residence, anticipation of future assistance to children (higher education, first installation and marriage), preparation of retirement, constitution of a precautionary savings plan, etc.
- Evolution of the matrix of “decision-making parameters” of a Customer over the years: Change in financial situation, change in family situation, the evolution of projects, Change in investment profile and aversion to financial risks;
- Evolution of offers on the market: This constitutes a logical and obvious progression of the range of life insurance products in direct correlation with the innovation of financial operators (investment strategy, financial arrangements, financial instruments etc.) and evolution of the regulatory framework (fiscal and social).
Findings and Needs on the “Insurers” side
Dictated by such a demand (divergent goals for the same holder requiring disparate investment strategies), most insurers have, so far, resorted to the proposal of independent products (Single-Compartment) each responding to a specific project or a very limited subset of projects. However, this method of product management presents insurers with major limitations that can be summarized mainly by the following points:
- Irrationality of the number of contracts managed at the level of their portfolio given the excessive number of contracts registered on the same holder;
- Mobilization of significant operating resources (Human and material) in order to manage in most cases, redundant transaction processes related to their business system.
- Products that lack of transparency and flexibility for their owners
The “Multi-Compartments” management mode (also called Multi-Wallets or Multi-projects) – a solution combining “Customer” and “Insurer” interests.
- General Principle
The “Multi-Compartments” management consists, within the same policy / product in management, of several investment modes / strategies (customer driven strategy, autopiloted strategy, Company driven strategy or mandate strategy) independent of each other allowing:
- Several investment strategies at the policy level (One strategy per investment coverage or per compartment or per project);
- Specific risk coverages for each Compartment.
The different Compartments defined on a contract are autonomous in terms of coverage services (Regular addition or Regular withdrawal), investment services (automatic rebalancing, securing capital gains, progressive investment, etc.) and charges. The latter are manageable on a single policy in intra-Compartment or inter-Compartments or both.
Target representations of a product in “Multi-Compartments” management mode
In addition to meeting the expectations of the customer, as well as the remedies that insurers bring presented above, the Multi-Compartments management mode:
- Allows “Insurers” to extend their offerings to their customers and reduce their operating costs.
- Avoids the “All or nothing” option for the saver: The management method “Multi-Compartments” has the advantage of avoiding the “all or nothing” option for the saver who wants, for example, to ensure a minimum amount of his savings invested in euro funds, while wanting to take advantage of the company driven strategy or mandate strategy, which allows many insured to take the step of investing in units of account. Facing this dilemma, many savers can resign themselves to choosing a 100% allocation in euros;
- Allows a different investment portfolio, composed of appropriate assets for each Compartment: This will provide each “Saver” with a perfect segmentation of current or future projects (it is a response to investment by goal);
- Allows each “Saver” to take advantage of a single tax priority for all projects;
VERMEG/SOLIFE – a perfect synchronization with the expectations of the market
Faithful to its policy of continuous improvement, VERMEG will, during 2021, integrate the “Multi-Compartments” management mode at the level of its SOLIFE tool. This integration will have an impact all product management parameters and will extend to all operations in the life cycle of a product/policy such as configuration of Multi-compartment products (creation and addition of compartments without limitation of number and according to the needs of the Insurer), investment processes (Subscription, Single Premium top up, Switch in…), divestment processes (Withdrawal, Switch out, transfer, Surrender, claim) and all technical or administrative endorsement (change of investment strategy, change of coverage or investment services, add a new compartment on policy…etc).
Majdi BEN MOALLEM – Project Manager at VERMEG