AFM Supervision of Closed-Book Life Insurance Policies

AFM Supervision of 'Closed-Book' Life Insurance Policies The AFM will continue to continuously monitor service provision, information disclosure, and outsourcing.

APRIL 2025 TWO-PAGER

At the end of 2024, the AFM conducted its monitoring of closed-book portfolios. These are portfolios of life insurance policies that are no longer sold but continue to run for existing customers for many years. These portfolios contain approximately 8 million life insurance policies that shrink by 6-7% annually. This shrinkage leads to a focus on cost control, and there is a risk that customer interests at life insurers may become less central as a result. We therefore focused on the quality of service provision and information disclosure to customers, following the exploration from 2022.1

In this two-pager, we outline the state of the market and provide a number of 'good practices' and recommendations for life insurers. Based on data analysis and discussions with a large part of the Dutch life insurance sector, the AFM has re-examined the strategies applied to these portfolios and their effects on customer interests. The AFM paid extra attention to outsourcing, given the 2022 recommendation that insurers could take outsourced activities with authorized agents more into account in their risk management.

Most life insurers indicate they see few opportunities in selling new life insurance policies and therefore focus on cost control for closed-book portfolios. This is done, among other things, by reducing the number of administration systems and further digitizing and optimizing service provision. Some parties choose outsourcing or takeovers to control costs. Although parties are also investigating the possibilities of artificial intelligence (AI) to improve processes, they are generally reluctant to use it, and AI is (still) not used for direct customer service.

Service provision and information disclosure appear to be largely adequate; life insurers also keep accessibility of their services in mind. Life insurers are also aware that they have customers who are less digitally skilled and, for example, keep telephone lines open.2 The AFM views it positively that insurers invest in maintaining the level of service provision and good reachability.

Life insurers indicate that they prefer to provide information to customers digitally and increasingly do so via a digital portal. Reasons for this are cost savings and sustainability. Customers have, for example, a 'My Environment' where they can view their policies and carry out simple changes. For more complex changes, insurers refer customers to an intermediary or their own telephone channel.

Lack of visibility of relevant customer data can complicate service provision to customers.

Several insurers acknowledge in discussions that the quality of customer data needs improvement, particularly in closed-book portfolios with funeral insurance. Sometimes deaths are not reported, or policyholders do not report address changes. Life insurers mention the announced access to the Basic Registration of Persons (BRP) as an opportunity to more targetedly search for next of kin.3

Some life insurers outsource administration, ICT management, and/or customer service, while others consciously do not. Outsourcing can achieve economies of scale that can reduce or flexibly adjust management costs and facilitate a higher service level.

At the same time, it can create dependence on the external party, and pressure can arise on the service level in the initial phase of outsourcing. The AFM sees the number of outsourcing arrangements with authorized agents decreasing.

Many insurers periodically evaluate their closed-book products based on product development standards, even where this is not legally required. We see that life insurers are trying to improve their service to customers, among other things, through customer satisfaction scores and complaint data. The AFM calls on the sector to regularly include closed-book portfolios in product reviews and to go through the product development process. Especially in combination with underlying customer data and complaint data, this can lead to improvements in service provision and products.

The AFM sees that insurers sometimes go beyond their legal obligations when providing information to customers. Insurers, for example, proactively alert customers to an insufficient insured amount in their life insurance. The AFM is positive that insurers show attention to customer interests in this way.

After a merger or takeover of a portfolio, it is particularly important to maintain the level of service provision. Based on an analysis of complaint figures, the AFM sees an increased risk of complaints after a merger or takeover. This is due to integration issues that can affect response times and result in overload of customer service. Some insurers see that customers want to resubmit an old complaint to the legal successor.

The AFM further highlights the importance of risk analyses for ongoing outsourcing arrangements. In the 2022 exploration, the AFM recommended conducting risk analyses for outsourcing to authorized agents. The AFM considers it important that insurers continue to perform these risk analyses for all outsourcing arrangements, repeat them periodically, and document them well.

The AFM will continue to monitor developments to ensure that customer interests remain central. The AFM uses a data-driven approach for this. Here, quantitative indicators such as shrinkage and complaint figures are combined with qualitative data, such as periodic discussions with life insurers. In this respect, this monitoring is an interim measurement point. Just like insurers, the AFM will also strongly advocate for a life insurance market in which insurers continue to prioritize service provision to customers in the coming years.

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The AFM advocates for fair and transparent financial markets. As an independent conduct supervisor, we contribute to sustainable financial well-being in the Netherlands. The text of this publication has been compiled with care and is of an informative nature. No rights can be derived from it. Due to changing national and international legislation and regulations, it is possible that the text is not up to date at the moment you read it. The Authority for the Financial Markets (AFM) is not liable for any possible consequences – for example, incurred loss or lost profit – arising from or in connection with actions taken based on this text. © Copyright AFM 2025 Authority for the Financial Markets Postbus 11723 | 1001 GS Amsterdam Telephone 020 797 2000 www.afm.nl Data Classification Classification

1 Customer interests must remain central, also for 'closed-book portfolio' life insurers 2 Access to financial services is not self-evident 3 Staatsblad 2023, 257 | Government.nl > Official announcements