The Challenges of the Life Insurance Business Model in a Low or Negative Interest Rate Environment

Life insurance, the main component of French insurance, owes it success to its ability to respond both to the needs to manage wealth long-term as well as to protect French households against life’s ups and downs. It offers them total liquidity, predictable returns, and tax breaks. However, today this success is threatened by the unprecedented drop in interest rates since the financial crisis. This decline weighs on the returns of new insurance policies and undermines the economic model of insurance companies. Nevertheless, only insurance techniques appear to be capable of responding to the long-term challenges resulting from the population’s need for protection, in particular the challenges related to aging. The life insurance business must necessarily reinvent itself in order to adapt to this economic environment. This means a reduction in the costs and marketing fees borne by these companies, changes in the regulatory and fiscal framework, and finally, the emergence of a service model.