Irish unit linked life insurance for use as a tool to protect assets from German income taxation

Bachelor Thesis 2004 104 Pages

Business economics - Accounting and Taxes



1. Executive summary

2. Aims and objectives

3. Background information
Far environment (STEEP analysis)
Industry competition
Threat of potential entrants
Threat of sthe bank grouptitutes
Bargaining power of buyers
Bargaining power of suppliers
Service quality

4. Research/methodology
Literature review
Market potential
German market for unit-linked policies
Client base
Customer segmentation and customer needs
Tax efficiency
‘Swissness’ and Open Architecture
Product literature and training material
Process model overview
Issues capturing the data
Unclear process definitions
Data collection
Regulatory and taxation restrictions
Data analysis
Product content
Attractiveness of investment content
Fee structure
Pre- and after-sales processes
Summary of results

5. Conclusion/recommended next steps
Key stakeholder groups/nature of performance
Recommendations: Marketing
Customer segmentation
Segment 1: Core affluent with volume < 5m Euro
Segment 2: HNWI with volume > 5m Euro < 20m Euro
Segment 3: UHNWI with volume > 20m Euro < 100m Euro
Segment 4: Ultra High Net Worth with volume >100m Euro
Differentiating capabilities
New sales arguments
PM High Yield
Creative swiping of order-winning criteria
New fee structure
Trust and loyalty
Recommendations: Operations
‘Flexible Specialisation’/special cases process
Increase knowledge of help-line
Close the communication gap
Automated pooling of sub-policies
Market risks during cooling off period
New access rights for Front Support

6. Key learning points/critical reflection

7. Acknowledgements

8. References

9. Appendices

1. Executive summary

One of the most significant changes in the financial services sector over the past few years has been the appearance of ‘bankassurance’.

With the foundation of Life insurance X Limited (INSURANCE COMPANY), an Ireland based insurance company, in May 2003 THE BANK GROUP Switzerland has committed itself to this attractive concept and profitable market. INSURANCE COMPANY offers unit linked insurance products for domestic wealthy clients in Germany. Main purpose is to create a portfolio ‘tax wrapper’, an investment vehicle for clients to generate capital gains, which are not subject to income taxation according to German Income Taxation Act.

The overall aim of this report is to find ways, which would enable both INSURANCE COMPANY and bank X (the bank) to increase their contributions to the strategic goals of THE BANK GROUP and to create a win-win-situation for both parties. Besides this, ways are identified, how INSURANCE COMPANY could manage to better meet the nature of performance demanded by stakeholders involved.

Purpose of this report is to inform the reader about a set of open questions and issues with respect to Marketing and Operations (section 2) of INSURANCE COMPANY’s product THE BANK GROUP Life Portfolio Plan (Germany). This report also targets to find answers to these questions and to develop improvement potential for these issues. Data has been collected internally and externally, using a specially designed questionnaire, having focus group meetings/quality cycles and reviewing external information such as market studies and articles in the media.

The background information (section 3) includes an analysis of strength/weaknesses and potential threats as well as a benchmarking approach of INSURANCE COMPANY’s product offering against major competition. This is combined with an estimate of the market potential, a detailed analysis (section 4) of customer needs and favourable investment content in the tax wrapper.

This leads to a first set of recommendations to gain differentiating capabilities and therefore competitive advantage by amending the current Marketing and Operational set up. This includes but is not limited to the development and introduction of a new Portfolio Management strategy, which is favourable to be invested in THE BANK GROUP Life Portfolio Plan (Germany). Additionally, this section introduces a new Special Cases process in context with the product.

2. Aims and objectives

Life insurance X (INSURANCE COMPANY) is an Ireland based insurance company[1]. INSURANCE COMPANY offers unit linked insurance products for domestic wealthy clients in five European countries (Italy, Germany, Spain, France and soon to be rolled out in the UK). Main purpose is to create an investment vehicle for clients to generate capital gains, which are not subject to income taxation according to e.g. German Income Taxation Act. INSURANCE COMPANY wants to become the insurance company of choice for tax-efficient portfolio wrappers.

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As all organisations INSURANCE COMPANY has to satisfy a set of various stakeholders, theirs needs and often different interest in the outcome of the organisation. Piercy’s stakeholder model[2] has been chosen to illustrate INSURANCE COMPANY’s stakeholders and their needs.

Since product roll-out in May 2003 insurance company has to deal with marketing and operations issues. Main objective of this project report is to identify, analyse and to critically challenge the underlying assumptions of these issues and to recommend a list of next steps to amend the current strategy and to add value to the current offering.

Overall objective is to recommend steps of strategic relevance, which will enable INSURANCE COMPANY to better meet the demands of stakeholders involved and to find answers to the following questions:

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3. Background information

Far environment (STEEP analysis)

Fahey and Narayanan’s (1986) STEEP-model has been used to analyse sociological, technical, economical, political factors and environmental issues. Factors inimitability, durability, relevance appropriability have been analysed as they are key for capabilities to offer competitive advantage.

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Porter’s (1980) five forces of competition provide a structured and comprehensive overview of bargaining powers and threats resulting from competition.

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Industry competition Abbildung in dieser Leseprobe nicht enthalten

- 133 were licensed with a permanent establishment in Germany to offer life insurance products by end of 2001.[9]
- Since European Financial Liberalisation Act (1st July 1994) insurance companies with a permanent establishment within the European Union can offer their products cross-border to EU customers.
- Similar product offerings are known of the following insurance companies:

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Focus now is on benchmarking[10] THE BANK GROUP Life Portfolio Plan (Germany) versus its main competitor Privatvorsorge by Lombard Assurance S.A. (Luxembourg). Model used is Porter’s (1985) value chain, as it provides a tool to identify both firms capabilities and helps to find competitive advantages or disadvantages.[11] Differences are highlighted in green (favourable) and red (unfavourable) Italics.

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Threat of potential entrantsAbbildung in dieser Leseprobe nicht enthalten

- Globalisation, the liberalisation of the market (Financial Services Act) and rapid technical development make it easy for other banks, global asset management companies, insurance companies or even joint-ventures of insurance companies and banks to diversify into the market of ‘assurance banking’. This might put margins under pressure.

Threat of sthe bank grouptitutes Abbildung in dieser Leseprobe nicht enthalten

- More traditional forms of unit-linked life insurance
- Secure investments with a similar tax benefit but shorter duration (non existing so far)
- Other investments with a tax benefit (ship funds, aviation investments, media funds)

Bargaining power of buyers Abbildung in dieser Leseprobe nicht enthalten

- CAs as technical buyers complain about lack of Unique Selling Proposition in comparison to product offering Lombard Privatvorsorge (Lombard Assurance S.A.)
- THE BANK as single distribution channel currently in Germany uses this knowledge to re-negotiate fees to figures that bring INSURANCE COMPANY’s cash flow at risk.
- Furthermore THE BANK CAs tend to sell products with shorter duration s/he understands.
- CAs perceive it as too complex to sell this product; internal product initiatives and administration tasks create time constraints on CA side to invest the amount of time necessary to be appear well prepared at the customer.
- Increasing price sensitivity in line with low average interest rate.

Bargaining power of suppliers Abbildung in dieser Leseprobe nicht enthalten

- THE BANK as single supplier of the distribution channel
- THE BANK as single asset manager
- THE BANK as custodian of the assets
- Insurance Services as consulting company

Service quality

SERVQUAL model of Parasuraman et al.[15] has been chosen to assess the quality of INSURANCE COMPANY’s current service offering. Issues are marked in bold italic letters.

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4. Research/methodology

Literature review

Market potential

An estimation of the size/potential of this particular niche market is difficult. As the product technically uses a unit-linked life insurance to protect wrapped assets against income taxation. Various influences were looked at: the German market for unit-linked life insurance policies, the potential of THE BANK’s existing client base regarding certain asset classes, which make most sense to be protected against taxes (see section data analysis; product content).

German market for unit-linked policies

1.3% of total life insurance premiums of 62,364m EUR was held by foreign insurance companies by the end of 2001 (this equals over 810m Euro). According to a business trend analysis of German Insurance Association the market for unit-linked life insurance grew by 29.6% and represented 4,530m EUR gross written premiums within the same year[16]. This equals 1,341m EUR.

Unit-linked premium growth in Germany is also driven by substitution business. Traditional participating policies often lack transparency. It is not always clear as to which portion of the investment return belongs to a company’s shareholders and to policyholders. Furthermore, charges to policyholders are usually not fully disclosed. The potential for business substitution is most pronounced in markets as Germany where unit-linked policies currently form only a small part of the market.[17]

THE BANK’s client base

THE BANK Germany has over 6,800 customers holding over 15bn EUR. Over 2.400 of these customers have a fully discretionary PM or Managed Funds Portfolio mandate with THE BANK representing over 5bn EUR. Distribution of discretionary investment strategies:

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Three existing investment strategies most attractive to be wrapped are highlighted (see section data collection, attractiveness of investment content). They represent a percentage of 47% (2.35bn EUR) of all discretionary managed assets with the bank. According to an analysis of THE BANK Customer Relationship Management approximately 43% of all customers have their investments with THE BANK almost unchanged for more than 12 years. This represents 1.01bn EUR.

Almost 15,000 German clients, who request an annual statement for tax purposes, are booked with THE BANK GROUP Switzerland. This client base has a similar structure in terms of distribution of its discretionary managed assets and represents an estimated additional potential of 2bn EUR invested long term (>12yrs) in Fixed Income, Income and Yield strategies.

Therefore the market for tax efficient portfolio wrappers such as THE WRAPPER (Germany) has an interesting market potential. It is a fast growing market of up to 4.5bn EUR of gross premiums to be paid, has a potential of up to 3bn EUR with existing clients of THE BANK GROUP and substitution potential for traditional life insurance products in Germany.


[1] A copy of its life insurance certificate can be found in the appendix (1)

[2] Piercy, 1997

[3] Heskett et al. (1990) defined this ‘as the event at which the customer comes into contact with a service provider, its people, its communication and other technology and the service it provides.’ This creates the most lasting impression, it is the ‘moment of truth’ (Norman, 1991)

[4] “Steueramnesie startet 2004” (Tax amnesty starts 2004), Frankfurter Allgemeine Zeitung (6th Dec. 2003)

[5] Presse- und Informationsamt der Bundesregierung der Bundesrepublik Deutschland - Press- and information service of the German government (2003)

[6] TPTBP = total premiums to be paid

[7] Ernst & Young AG (12/2003) expertise about ‘Regierungsentwurf des Gesetzes zur Neuordnung der einkommensteuerlichen Behandlung von Altersvorsorgeaufwendungen und Altersbezügen’ – draft of a new legislation of the income tax treatment of savings for pensions and pensions

[8] Frankfurter Allgemeine Zeitung 13th January 2004, p. 13

[9] GDV (Statistical Yearbook of German Insurance 2002)

[10] Watson, G.H. (1993)

[11] Porter, M. (1985)

[12] Extendable mark-up language

[13] NNM = Net New Money

[14] Value discipline according to Treacy and Wiersema (1996)

[15] Parasuraman et al. (1985)

[16] Wolgast, M. and Buttenboeck, W. (2003) in Statistical Yearbook of German insurance of Gesamtverband der deutschen Versicherungswirtschaft e.V. (German Insurance Association)

[17] Helfenstein, R. and Barnshaw, M.(2003)


ISBN (eBook)
ISBN (Book)
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Irish German OUBS B736 Investigating Performance Change



Title: Irish unit linked life insurance for use as a tool to protect assets from German income taxation