Lettre Decavi (non-subscription) June 2023
Table of contents
6 Rights of parties to the contract
9 Wealth insurance: opportunities and challenges
16 Luxembourg: what’s in it for you?
22 Interview with Laurent Gayet (Axa Wealth Europe)
Custy (present in Belgium, Luxembourg and France) is a major player in the development of IT solutions and specialized services dedicated to the insurance sector. Our solutions help brokers, wholesaler-delegates and insurers to create the right conditions for their transformation, so they can become and remain market leaders.
Custy LIFE is dedicated to wealth insurance management: our software, dedicated to savings insurance, guarantees a balance between assets and liabilities, whatever the type of investment medium. This platform enables :
- operate simply, efficiently and in a timely manner; reinvent the product offering, taking into account single-insurer, multi-insurer or co-insurance capabilities;
- provide brokers and distribution channels with an excellent level of service;
- reduce operating expenses and increase productivity.
- devote additional time and resources to quality and compliance procedures;
facilitate the implementation of a digital transformation.
– Today, Belgians are increasingly turning to estate life insurance offered by life insurance companies established in the Grand Duchy of Luxembourg, because of its flexibility, tax neutrality and numerous estate planning possibilities. Life insurance is therefore an excellent asset management tool, offering a personalized solution fully adapted to customers’ needs.
– But there’s no denying that at the moment, the current context is difficult for investments.
Indeed, governments around the world are grappling with inflation, while facing the prospect of social instability, rising geopolitical uncertainties and the growing burden of sovereign debt and its consequences. An increase in the tax burden is also expected, generally targeting wealthy entrepreneurs and (very) wealthy families.
The current environment is prompting some customers to focus more on wealth and estate planning,
actively seeking ways to ensure the international portability of their assets.
– According to Lombard International Assurance (see the report on European wealth insurance below), this is reflected in a growing interest in tailor-made wealth structuring tools, capable of meeting complex needs simply and efficiently. Whether it’s naming beneficiaries, protecting portfolios against market volatility or making their assets transferable between jurisdictions, this can involve integrating a financial portfolio into a Luxembourg unit-linked life insurance solution.
Against this backdrop, Luxembourg unit-linked life insurance is an attractive tool enabling a growing number of (very) wealthy individuals to implement their wealth planning strategies.
This Decavi newsletter (non-subscription, in collaboration with Custy) looks at certain aspects of wealth management through life insurance.
Good to know:
- visit rights of each of the parties to an insurance contract the policyholder, the insured and the beneficiary;
- the opportunities and challenges facing the wealth insurance sector based on a survey carried out by Lombard International Group (in collaboration with Accenture Luxembourg);
advantages of the legal framework of the Luxembourg insurance sector
which offers unique asset protection for policyholders.
Rights of parties to contract
– We summarize the rights of each party to the insurance contract. The insurance contract involves three very different people:
- the policyholder: the person who takes out the insurance contract;
- the insured: this is the person on whom the insured risk is based (his or her survival or death triggers the insurer’s benefit);
- the beneficiary: this is the person entitled to the capital sum in the event of the insured’s life (often the policyholder) or death (in which case a third party will receive the capital sum).
is the person who takes out the policy and pays the premiums. Without it, there’s no capital insured, since it’s the one who pays into the policy.
– The policyholder’s first right is the right to to name the beneficiary of his or her choice (with or without family ties), i.e. the person entitled to receive the sum insured. In so doing, it deliberately favors a third party to the contract.
The policyholder, if alive at the end of the contract, is often the direct beneficiary of the benefit. In the event of death, the insured capital is paid to a third party (spouse, children or any other person).
This right to name a beneficiary is reserved for the policyholder alone (neither the insured nor the beneficiary may exercise this right). This appointment can be made at any stage of the contract: at subscription, or even during the contract.
– The lessee also has the right to
revoke the beneficiary
With one important exception: if the beneficiary has “accepted” the beneficiary clause (he or she is then called the accepting beneficiary), the policyholder can no longer, in principle, be revoked. The lessee will therefore no longer be able to name another beneficiary.
The policyholder/subscriber can therefore always reverse his or her choice and designate one or more other persons.
– The policyholder also has other rights… which are exclusive to him: in particular, the right to rbuy your insurance contract (he recovers the premiums paid and the contract is terminated: not advisable from a tax point of view) or the suspend premium payments (the contract is maintained, but the sum insured is “reduced” in proportion to the premiums paid).
Other rights reserved to the policyholder include the right to request an advance on the benefits insured under the contract, and the right to pledge rights to the insurance contract.
– The insured is the person on whom the insured risk is based. In the event of his death, the insurer must pay the insured capital, at least if a death benefit has been taken out. In the event of survival at the end of the contract, the insurer must also pay the agreed capital. It all depends, of course, on the type of coverage you take out.
– But the insured has no specific rights to the insurance contract (unlike the policyholder or beneficiary).
Remember that multiple policyholders are possible.
The beneficiary is the person (natural or legal) entitled to receive the insured capital when the insured risk occurs.
(survival or death of the insured). The beneficiary receives the sum insured, but only on one condition: that the policyholder does not redeem it.
or does not suspend the contract.
Note that there may be more than one beneficiary. The beneficiary has the right to accept the beneficiary clause and claim the insurance benefit that arises when the risk occurs.
His rights are therefore highly dependent on whether or not the policyholder wishes to continue the contract to its term (in the case, of course, that the policyholder is different from the beneficiary).
– As a general rule, these different roles (policyholder, insured and beneficiary) are combined in the case of
the same person when a benefit is provided in the event of death: the policyholder pays the premiums, is the insured person and names himself as the beneficiary of the capital.
– However, several other scenarios remain possible,
and in particular the following two:
a) the policyholder, the insured and the beneficiary are three different persons. This is the typical case of a grandfather (policyholder) who insures his son (insured), naming his grandson as beneficiary.
b) in the case of a death benefit, the insured must name a beneficiary during his lifetime. That’s often the case,
spouse or children. In this case, the qualities of policyholder and beneficiary are always combined on the heads of two different people. In the event of death, the beneficiary is always a third party in relation to the insured.
Wealth insurance : opportunities and challenges
– Lombard International Assurance, Europe’s leading provider of unit-linked life insurance-based wealth and estate planning solutions for high net worth individuals, their families and institutions, has published (March 2021) a study a pan-European leader in unit-linked life insurance (in partnership with Accenture Luxembourg).
The European Wealth Assurance Report paints a picture of the drivers, challenges and, above all, opportunities for the wealth insurance industry as it seeks to adapt and evolve to changing demographics, the economic environment and the increasingly sophisticated wealth and estate planning needs of high-net-worth individuals and their families.
– The survey ran from September 15 to October 31, 2020. It attempts to answer the following questions:
a) What is the relevance of wealth insurance, also known as unit-linked life insurance or private placement, as a wealth structuring and planning tool?
b) How is it perceived by wealth management professionals in Europe?
c) what underlies its appeal?
d) what are the challenges and opportunities for the sector?
– The report includes responses from professionals based in the UK, Belgium, Finland, France, Germany, Italy, Luxembourg, Norway, Portugal, Spain, Sweden and Switzerland. The top 5 geographical locations of origin for participants are Luxembourg (21%), Switzerland (15.3%), France (14.2%), Italy (13.8%) and Germany (9.4%).
The survey brings together 677 wealth management professionals based in Europe: private bankers, independent financial and wealth management advisors, insurance brokers, family officers, independent asset managers and tax lawyers serving the needs of high-net-worth clients and families.
Unit-linked life insurance takes off
Wealth management professionals across Europe are predicting a growing appetite for unit-linked life insurance. Here are a few key figures confirming this trend:
- 57% believe that unit-linked life insurance is a good tool for wealth and succession planning . Wealth professionals in France (86%), Italy (79%) and Belgium (66%) make greater use of unit-linked life insurance. On average, only 4% of wealth management professionals in Europe have never taken out unit-linked life insurance policies with their clients;
- 54% of wealth management professionals forecast growth in the unit-linked life insurance market over the next 5 years;
- 30% of wealth management professionals say that more than half their clients use unit-linked life insurance policies ;
- 50% of insurance brokers and family offices surveyed said that more than half their customers have a unit-linked life insurance policy.
– Professionals all over Europe are unanimous on the key factors in choosing a wealth insurance provider.
Wealth management professionals based in 12 European countries say that quality of service is by far the most important criterion when it comes to choosing a preferred wealth insurance provider. service quality is by far the most important criterion when it comes to choosing a preferred wealth insurance provider.
While quality of service is at the top of the list of selection criteria in all the countries surveyed, and wealth management professionals good relations and communication with the insurance company team rank second, technical expertise and knowledge being the third most important criterion.
– Wealth management professionals collectively ranked digital service platform and digital channel offering as their fourth most important criterion when evaluating and selecting a unit-linked life insurance provider.
This highlights the value that the market places on technological innovation in the servicing of unit-linked life insurance-based solutions, and reiterates, where necessary, the importance of this process undertaken by suppliers.
– When it comes to
the most important criteria
for wealth management professionals in examining and selecting a unit-linked life insurance provider, the trend between geographical areas is anything but uniform.
We mention them, in order of importance, for certain countries:
Belgium and Switzerland
1) fast, efficient partner services ;
2) expertise and technical knowledge ;
3) good relations and communications.
1) fast, efficient partner services ;
2) good relations and communications ;
3) technical expertise and knowledge.
1) fast, efficient partner services ;
2) good relations and communications ;
3) platform and digital service offering.
1) expertise and technical knowledge ;
2) fast, efficient partner services;
3) fair costs and good value for money.
1) expertise and technical knowledge ;
2) fast, efficient partner services;
3) good relations and communications.
– Wealth management professionals rank the main influencers likely to improve partnerships’ satisfaction with their existing unit-linked life insurance providers.
The three most important criteria are as follows:
- the ability to manage complex cases;
- details on the breakdown of costs billed to customers ;
- support for regulatory impacts.
Details on the breakdown of fees charged to clients and support for regulatory affairs were identified as key criteria for improving partnership satisfaction, ranked second and third by wealth management professionals.
– Next come the following criteria:
- the meeting deadlines ;
- l’ offer on digital channels ;
- reaction time for incomplete files; accuracy of customer reports;
- operation speed ;
- information on customer access policy; portfolio activity reports;
- the quality and user-friendliness of partner extranets; customized customer reports ;
- the quality and user-friendliness of customer extranets.
Explosion of digital services
– Wealth professionals have high expectations of digital services: they anticipate an explosion of explosion of digitization in the wealth insurance sector .
– The vast majority of wealth management professionals (75%) expect the level of digitization to be
high or very high level of digitization
over the next three years.
In Belgium, 93% of respondents say they expect the unit-linked life insurance market to experience a very high or high degree of digitization over the next three years. France is at 90% and Italy at 80%.
UK-based professionals are the most uncertain, with 15% explicitly expecting a very low level of digitization.
– More than one in five (22%) identify digital customer integration and e-applications as their preferred additional services that unit-linked life insurance providers should offer.
– The digital service offering needs to be improved industry-wide. Overall satisfaction with available services scored a modest average of 2.89 on a 5-point scale (5 being “very satisfied”).
The availability and quality of digital documents and reports seem to be the most satisfactory areas. Heritage professionals based in France and Portugal are the most satisfied, with scores of 3.5 and 3.6 out of 5 respectively for the digital services they receive.
The following criteria are sought:
- quality of files transmitted in digital form; access to documents in digital form;
- digital reporting tools ;
- availability of real-time data updates; integration of digital customers ;
- the use of electronic signatures ;
- extranet and transaction capture quality; smartphone applications.
– The technology is seen as a key service enabler.
Technologies are considered most important by respondents, who identify, first, customer service technology, followed by cybersecurity and mobile technologies.
– Wealth management professionals expect digital tools to enhance the advice and services they can provide.
When asked what additional services unit-linked life insurance providers should offer, digital customer integration and e-applications applications came first (22%), while innovative innovative solutions based on customer needs came second (17.6%).
Digitization returns to the forefront in their third priority, with the requirement for digital solutions to reduce acquisition costs and increase broker productivity (16,3%).
Luxembourg: what’s in it for you?
– In the current crisis, investors are looking more than ever to secure their assets.
With its remarkable economic, political and fiscal stability, Luxembourg offers a wide range of wealth management solutions, Luxembourg Luxembourg is a prime location for savers,
especially for the wealthiest among them. One of the most popular solutions is the life insurance contract.
1. Regulatory framework
he legal framework of the Luxembourg insurance sector offers unique asset protection for policyholders
(including Belgians) thanks to the following features: the Triangle de sécurité, protection against possible insurer bankruptcy and protection against
creditors. We take a closer look at these advantages.
a) Safety triangle
The Luxembourg life insurance contract comes with a significant advantage:
the Triangle de Sécurité (sometimes referred to as the “super-privilege”).
The Triangle de sécurité is a tripartite relationship between the insurance company, the custodian bank (which will hold the assets of the policyholder(s)) and the Commissariat aux Assurances (Luxembourg’s insurance regulator).
This tripartite relationship is embodied in an agreement defining the roles and obligations of each party. An undeniable advantage of this tripartite relationship lies in the segregation of assets.
Indeed, once the policyholder has paid the premium to the insurer, who becomes its owner, he or she holds a claim on the insurance company, giving rise to the application of the asset protection system.
– Since Luxembourg law stipulates that the policyholder’s assets must be segregated from the assets of the insurance company and the bank, the policyholder’s assets must be segregated from the assets of the insurance company and the bank, the insurance company is obliged to deposit the assets linked to life insurance policies with an independent custodian bank, which must itself be approved and supervised by the Commissariat aux Assurances (CAA).
In return, the insurer must set aside “technical reserves” on the liabilities side of its balance sheet to guarantee the commitments made by policyholders and control its solvency. For its part, the CAA also monitors compliance with solvency ratio rules for each life insurance company.We summarize the features of this Safety Triangle:
- All assets linked to life insurance contracts (“technical reserves”) must be deposited in the accounts of a custodian bank. The assets are held off-balance sheet by the Luxembourg insurer (in Belgium, the assets form part of the insurer’s balance sheet, but are managed separately).
- The bank is approved by Luxembourg’s insurance regulator, the Commissariat aux Assurances (CAA).
- The policyholder’s assets must be kept separate from the assets of the insurance company and the bank.
- The CAA closely monitors each life insurer’s compliance with solvency ratio rules.
– Luxembourg has therefore introduced a very specific guarantee,
whereby subscribers become
. This right takes precedence over all other creditors.
In the event of the insurer’s default, policyholders thus have a preferential claim on the company’s own assets.
b) Protection against potential bankruptcy of the insurance company
The policyholder’s assets are segregated from the bank’s and insurer’s assets . This has the following consequences:
- in the event of the insurance company’s bankruptcy, assets are held in separate accounts linked to the insurer’s technical reserves for the benefit of policyholders and beneficiaries;
- in the event of financial difficulties, the Commissariat aux Assurances
- (CAA) can freeze these accounts (article 116 of the Luxembourg insurance law): no transactions can be carried out from them without prior authorization from the CAA.
- (whether by the insurer or the bank);
- policyholders have preferential rights over the assets of separate accounts (Article 118 of the Insurance Industry Act), a “Super Privilege which gives them priority over all the company’s other creditors.
In most European countries, depositor protection is limited to EUR 100,000 per person and per bank. In Luxembourg,
there is no limit to the amount of the “Super Privilege” granted to subscribers
c) Protection against seizure of the policyholder’s claim by third parties
The Luxembourg regime provides protection of the policyholder’s assets against a potential claim by one of his creditors:
- rights to surrender, advance or pledge the policy are personal rights of the policyholder alone; these rights cannot therefore be seized or exercised by his or her creditors;
- the subscriber’s creditors cannot force him to exercise these rights;
- the policyholder’s creditors cannot seize the policy either, since this asset is the property of the insurance company.
The policyholder’s creditors may seize the policyholder’s claim against the insurer in order to recover their debt, but they will not receive any payment from the insurance company until the policyholder has freely decided to exercise his or her surrender rights on the policy.
The only exception to this principle is the payment by the policyholder of premiums that are manifestly exaggerated in relation to his or her resources and assets.
– The portability of Luxembourg life insurance is another of Luxembourg’s considerable advantages. However, each situation must be analyzed according to the country of residence of the subscriber and beneficiary, to avoid unpleasant surprises…
One of the reasons Luxembourg is so popular with international savers is its tax neutrality The only tax applicable to this type of contract is that of the policyholder’s country of residence. Unlike other countries, Luxembourg does not tax this product when it is held by a non-resident.
– The portability of life insurance contracts under Luxembourg law resulting from this specificity enables policyholders to change their country of residence without exposing themselves to the risk of double taxation.
From one country to another
– However, putting this into practice requires a real technical knowledge of the legislation of the various countries to which policyholders and beneficiaries will be moving. Indeed, each country has its own legislation on the subject, and this can vary enormously, with important tax and civil implications.
In some countries, such as Germany, for example, the insurance part of the contract has to be very carefully constructed for it to be considered a life insurance contract.
or Spain, it is not possible to invest in specialized insurance funds through this type of contract. If this is the case, life insurance is no longer considered as such and becomes, in the eyes of Belgian or Spanish law, a securities account or an investment product.
In addition to the place of residence of the policyholder, the place of residence of the beneficiary must also be taken into account.
For example, if the subscriber is resident in Belgium and the beneficiary is resident in France, it is advisable not to include a beneficiary clause in the contract, in order to avoid double taxation. In the event of the policyholder’s death, you will also need to be able to assess the tax treatment of the death benefit distributed to the beneficiary, depending on his or her new country of residence.
Many of these factors need to be taken into account before either party expatriates, so that the life insurance contract can be adapted to avoid harmful consequences, particularly in terms of taxation.
– To avoid any unpleasant surprises, the best thing to do is to regularly re-evaluate the client’s asset structure. In addition to moves, events such as divorce, birth or a change in the law can render the initial arrangements obsolete. An amendment to the life insurance contract could prove very useful.
– Luxembourg life insurance is also ideal as part of an estate planning process. estate planning process . And yet, we find ourselves in a situation where the baby-boomer generation is massively passing the baton to the one before it. Many people are therefore in a position to use this tool to ensure that their estate is passed on to future generations.
– What emerges from the survey carried out by the Lombard Group, in collaboration with Accenture Luxembourg, is clear: wealth management professionals across Europe predict a growing appetite for unit-linked life insurance.
– Life insurance is nothing more than a legal envelope that allows the policyholder to entrust a sum of money to an insurer, with a view to making it grow within the framework of a defined investment strategy, and to transmit freely the assets thus created to one or more beneficiaries determined by the policyholder.
However, the parties to the contract are not all in the same boat: the policyholder and beneficiary have specific rights, while the insured does not . But without the latter, there is no insurance contract, since it is his survival or death that triggers the granting of the insured benefit by the insurer.
– In addition to the portability of Luxembourg life insurance, we have mentioned the interesting features of the legal framework for insurance in Luxembourg which offers unique asset protection for policyholders (the “Safety Triangle”), protection against potential bankruptcy of the insurance company and protection against seizure of the policyholder’s claim by third parties.
Interview with Laurent Gayet, Deputy CEO,
Head of Business Development, Axa Wealth Europe.
At a DECAVI breakfast held in Luxembourg on May 17, 2023, Laurent Gayet, Deputy CEO, Head of Business Development, Axa Wealth Europe, gave his views on the challenges and strengths of life insurance and wealth management in Luxembourg. We asked him 5 questions.
Can we talk of a significant insurance success story in Luxembourg?
– Certainly. To put the structural success of Luxembourg’s insurance industry into context, in 2022 – despite a complicated year – Luxembourg’s premium income was still EUR 23.1 billion (compared with EUR 25 billion in 2021), but has remained remarkably constant at over EUR 20 billion for the past 8 years.
We are currently witnessing an increasingly unit-linked culture, with rising interest rates, the cyclical success of euro funds boosted by insurance company bonuses, term deposits with yields of between 3.3% and 4%, and the success of real estate encapsulated in the life insurance envelope. Insurers are ensuring their resistance and resilience in the face of banking products that have become competitive once again.
In addition to the safety triangle, Luxembourg also benefits from the Super Privilege” guarantee This guarantees policyholders of life insurance policies in Luxembourg priority over all other parties involved in the event of default by the insurance company (tax authorities, social security authorities, employees, etc.).
– Another major reason for Luxembourg’s success is that the is rated 3 À and has low debt levels. . This is reassuring for wealthy individuals wishing to invest their savings in a country that knows how to keep its public finances under control, as the memory recalls the Cyprus syndrome… and the state’s deduction from their accounts.
– Families are increasingly mobile, and the ability to draw on international wealth management advice is an asset that makes more and more sense today. Surprisingly, at the last 60% expatriation fair, the visitors were young retirees. And yet, the Luxembourg insurance envelope is the best-traveling receptacle product. What’s more, with a few exceptions, it is immune to anti-abuse measures, since most European countries legally favor it, which is a guarantee of peace of mind for customers. One word sums up Luxembourg’s success:
which remains the mother of all asset virtues.
What makes life insurance an ideal asset management tool?
– Life insurance policies are an excellent asset management tool, thanks to their broad range of financial management options and favourable tax treatment.
and their favorable tax treatment. It’s a “Darwinian” product that can be simple or sophisticated, and an estate-planning tool that allows us to secure the future of our loved ones (not just our family), within a secure and tax-efficient legal framework.
– The musical variations for this “Mozart” of contracts are virtually unlimited: dismemberment of the contract, dismemberment of beneficiary clauses, accretion clauses, donation of the contract in Belgium, simple partnership, trading companies: almost anything becomes possible with the patrimonial tree and its Branches 6, 23 and 21.
How do you see the future of wealth management?
The wealth management market remains a growth market that continues to demonstrate its resilience.
In today’s world, with people getting older and healthier, we’re inheriting today at the same age we were dying yesterday. The anticipation of transfers that made gifts and contributions such a success now seems less important, with customers more worried about their future and more focused on the interest rates on their savings, which take account of the impact of inflation. This leads to a war of rates and fees, which, regrettably, is sometimes the only prism for the customer’s final decision. A word of caution about donations in Belgium’s Walloon region: the increase from 3 to 5 years in the time limit for avoiding inheritance tax in the event of the donor’s death has led to a sharp rise in living donations.
Furthermore, while it’s true that high-net-worth customers are used to not being billed for our international asset value-added, regulatory and tax changes are making the environment more complex and forcing us to rethink our business models in order to preserve the healthy margins of the various players (brokers, banks, insurers, agents…), especially when regulators are putting pressure on value for money. This is creating a new ecosystem paradigm that we’ll soon have to face up to.
– Digital technology will help, but each link in the value chain, including the customer, must always bear in mind that good advice has a cost, but no price, and that loyalty is a long-term commitment if the support embodies measurable service quality.
Today, digital is a major asset for insurers…
– It’s clear: when almost 100% of your business is outside Luxembourg’s borders, digital is a must-have. cyber security which is a strategic constant at AXA. Our ability to protect data in a country where insurance secrecy is well known is a major challenge. The idea is to maintain a very human, local approach, while optimizing tools for customers who are augmented and very zappy, especially the younger generation for whom a simple click should meet 80% of their needs. Fortunately, there’s still the 20% high-end expertise that has to make the difference to win their loyalty.
– Digital is therefore a means to an end, not an end in itself, but also a risk for wealthy customers who are very attached to the label of discretion. The collection, processing, analysis and storage of data now represent a major reputational and financial risk. For AXA Wealth Europe, this means a centralized security organization at AXA head office (Group security), which pilots, supervises and monitors the deployment of security programs for all entities.
Do you fear the new players (GAFA) for your insurance business?
– The ever-increasing regulatory burden weighing on the insurance industry sometimes verges on textual harassment. Insurers complain about this, because the control forces are becoming more and more important, as opposed to the sales forces, and it is sometimes questionable whether increasing complexity is in the customer’s interest. The best becomes the enemy of the good, and for us professionals, the fear that the devil is in the detail. Lawyers and compliance officers can be confident about the future of their professions.
– However, if I can find one fairly positive factor in this inflation of texts, it’s that it has provided protection against the arrival of new players (the GAFAs: Google, Apple, Facebook and Amazon) whose penetration into the highly regulated world of banking and insurance seems, for the time being, to have been held back by red tape and the piling up of standards. But the question is: until when?
Power will belong to whoever can best manage and control “data”, while being very mindful of confidentiality and the limits of artificial intelligence. Our capacity for innovation and the strength of our group should enable us to meet these challenges. So I remain resolutely optimistic.
“Collection, processing, analysis,Laurent Gayet, Deputy CEO, Head of Business
data storage is now a major reputational and financial risk. “
Development, Axa Wealth Europe
Our ability to protect data in a country where insurance secrecy is well known is a major challenge.