September 2017
The Dutch Life insurance market is a mature and saturated market characterised by fierce competition and price-pressure due to contracting demand for Individual Life and traditional Group Life products. The market is confronted with challenges such as:
As a consequence, the profitability of Dutch insurers has been under pressure for several years and production volumes are further decreasing. One of the responses of Dutch insurers has been to close new business for a part or all of their Individual Life and traditional Group Life products.
Closed Life insurance books (“closed books”) have no new policy sales except for contractually allowed increases. As no new policies are sold, the number of policies (and ultimately also the size of the reserves) decreases over time leading to increasing administration costs per policy.
Without pro-active management of closed books, this expense challenge will decrease the value of the insurance block and reduce returns to shareholders. The two key challenges of closed books are:
The specifics of managing a closed book and also the required skills warrant special management focus as they are (somewhat) different from managing an open book.
Dutch Life insurers have two options to address the challenges of closed books: (i) sale of their closed book; or (ii) retention of their book.
The disposal of closed books will result in the release of capital that can be deployed to support other business priorities. Also, it enables management to fully focus on new business strategy and products.
If retaining the closed book until expiry, one or a combination of the following strategies are essential to reduce the cost per policy:
Managing closed books requires management focus given their complex challenges. In the Netherlands, most Dutch insurers are currently in the process of considering the different strategies depending on the size of their closed books. Only a limited number of insurers have actually started to implement a strategy to face the challenges of a closed book.
"Only a limited number of insurers have actually started to implement a strategy to face the challenges of a closed book."
Wilbert van den Heuvel
Banking & Capital Markets Leader, PwC Netherlands
Tel: +31 (0)65 184 54 76