Customer Preferences in German Life Insurance Savings Products: A Conjoint Analysis Approach

Guaranteed interest rates and capital guarantees have been standard features in life insurance savings products in German-speaking countries. Life insurers sold products with interest rate guarantees up to 4% in the 1990s and still had an average guaranteed rate of about 3% in their in-force books in 2014. Since savings contracts are long-term contracts, the duration of such policies typically exceeds the duration of the insurers' assets. Thus, the current low interest rate environment has increased pressure on the profitability of life insurers. As a consequence, insurers are developing products with alternative return schemes and moving away from fixed interest rate guarantees. This raises the question to what extent guaranteed interest rates and capital guarantees are valued by the customers and if these features can be compensated for by other benefits like higher expected returns or alternative investment profiles. To provide an answer to this question, we analyze data from a unique representative market study of the German population carried out in Germany in 2014. Based on a choice-based conjoint analysis, we estimate individual part-worth utilities through the hierarchical Bayes model. Our main findings include that the guaranteed capital amount is the attribute affecting customer preferences the most. Further, participating life insurance products offering guarantees are always preferred even if alternative products without guarantees offer expected returns that are more than three times higher. Such results are highly relevant for the developing life insurance business.