Malta’s life insurance coverage slipped to just 37 per cent of the EU average in 2013, according to MSV Life chief executive officer David Curmi.
The percentage is a significant improvement on 1998, when the life insurance market was virtually non-existent, boosted by the setting up of MSV Life four years before, and the eventual entry into the market of HSBC Malta, still the two major players.
The market dipped in 2008 and then again in 2011 and 2012 but since then started to grow again – although the terms covered by the insurance policy are tending to be shorter ones, for between six to 10 years.
Nevertheless, per capita spending on life insurance in 2013 was just €403 in Malta, compared with an average of €1,098 in the EU.
The 2012 chart shows that Scandinavian countries have the highest coverage rates, mostly because people there do not rely on the state for their future.
“People in Malta are not adequately covered for the death of the breadwinner; only a third of the population have life protection covering early death,” he said, noting that most people only have sufficient coverage to cover their bank loans and mortgages.
The phenomenon is not uniquely Maltese and the so-called ‘protection gap’ is becoming a concern across Europe.
However, Mr Curmi pointed out that Malta was one of only two member states that does not have fiscal incentives to encourage a higher uptake.
Mr Curmi sees the silver lining and considers the gap between Malta’s coverage and that of the EU average as potential growth for the life insurance market in Malta.
He is also crossing his fingers with regards to third pillar pensions, with the government sending strong signals that this will actually become a reality after nearly decades of talk. MSV Life sent its feedback to the latest consultation process last January.
The government needs to encourage saving
“The absence of a third pillar pension was one of the country-specific recommendations made by the European Commission so there is pressure building up on the government from various sides to get this into place,” he said, noting that there were millions of euro lying relatively idle in banks and property which could be invested into private pensions.
“People prefer to spend rather than to save so the government needs to encourage saving to reduce people’s dependence on state pensions,” he said.
This becomes all the more important when you consider that life expectancy is improving. And this is not some theoretical concept: In actuarial terms, life expectancy is improving by four hours a day, meaning that men will draw a pension for some 18 years while women will spend 23 years.
Whether MSV Life will opt to provide a product or not – it has already done considerable homework – depends to a large extent on what the eventual format will be.
“It depends on whether the margins that pension providers will be able to charge are regulated, and if so, what they will be,” he said.
The third pillar will almost certainly be a defined contribution – as opposed to a defined benefit – and will probably be open to multiple providers.
“We have already made a massive investment in our IT system to be able to handle third pillar pensions, whatever form they take. We are doing this with our shareholder Mapfre and the system we are creating will eventually be used by it in other jurisdictions. It will give MSV Life a big lead in customer relations and delivery.”
MSV Life employs just 70 people, but with assets of €1.4 billion, it is one of the larger players of the Maltese economy.
Its ‘business written’ was €111.3 million in 2013, and it recently reported pre-tax pofits of €15.5 million, giving a return on equity of 16.98 per cent.
The company, celebrating its 20th anniversary this year, has 84,000 customers, and signed its 100,000th policy a few weeks ago.
Last year, MSV Life had 59 per cent of the life insurance market, up from 51 per cent in 2012.