The effect of transparency on investment-linked insurance-product customer behavior

Investment-linked insurance products are among the potential choices of individual investors, along with mutual funds, managed portfolios, equity, bonds, term deposits, etc. They offer a series of advantages versus other investments, such as accumulation of retirement funds with affordable periodic installments, tax benefits, waiver of premium in case of disability, unemployment, death of the payer, etc. The range of products, offered to individual - retail investors - insured, has significantly increased over time and can be either standardized or tailor made. They are promoted by different distribution channels, such as insurance agents, brokers and banks, consequently increasing their reach. The acceptance by the audience has been also increasing over the years, as they sometimes offered guarantees or promised long-term returns that were higher than via other types of investments. However, the combination of investment solutions with insurance coverage can possibly make these products complex and more difficult to comprehend. As a consequence there has been a growing need to remove small print, as well as introduce disclosures, so that retail investors can make well-informed decisions. Such disclosures are so far mostly uncoordinated; as a result they do not help individuals to compare the different options they are offered or even sometimes fully grasp their features, often leading to investment choices without accounting the relevant risks and costs. This has occasionally led investors – insured to record losses that they have not anticipated or were not willing to accept or even able to afford. This has emerged even more during the recent financial crisis. The European Union has identified the need for uniform rules on transparency, applicable to all involved players in the Packaged Retail and Insurance-based Investment Products (PRIIPs) market. It will therefore introduce a relevant legislation in 2016, aiming at enhancing investor – insured protection and restoring the retail investor confidence. The different member states have already made efforts to introduce key information documents, in an effort to secure investor protection. However, besides the merit they can achieve, these efforts are not coordinated and they could diverge, as they depend on the local legislations. In this manuscript wequantify the effect of the existing transparency rules in the different member states as an indication of their impact. Customer and policy retention, customer satisfaction and premium level and growth are some of the measures we consider in order to identify the effect of transparency in the relevant market.