Policies: from the ashes of surrenders, lessons for the future

by Bojan Petrovic, Senior Manager, and Maurizio Primanni, CEO, Gruppo Excellence

After a two-year period of negative net inflows in 2023 (-22 billion) and 2024 (-3.5 billion), the life insurance business returned to positive territory last year, with net inflows of 9.9 billion, premiums amounting to 118.7 billion, and surrenders down by 6.6% to 82.2 billion.

The real driver of the recovery was undoubtedly the multi-line policy, whose premiums reached 40% of total Life premiums for the year. This reversal was not the result of a cyclical effect, but represented the culmination of a deeper trend.

To understand why surrenders followed this pattern in recent years, it is necessary to start from a decisive distinction, which Ania itself explicitly recalls: in whole life policies, the surrender should largely be read as a divestment rather than as an early termination of the contract.

This is an important point, because it shifts the analysis from the purely insurance-related level to the wealth management level. For most analysts, the triggering factor was competition in terms of performance from other products. Indeed, the ECB’s interest rate increases in the second half of 2022, on the one hand, caused unrealised losses to emerge in some cases in the segregated funds underlying life products; on the other hand, they restored competitiveness to instruments that had been out of play for years, such as government bonds, deposit accounts and money market funds.

Clients, especially those less loyal to the distributor, made a simple financial calculation and reallocated their investments accordingly.

But there is more: the wave of surrenders was also fuelled by a reputational factor. Following the rise in interest rates, there were also some cases of crisis among life insurance companies, such as the receivership of Eurovita, involving 350,000 policyholders and 15 billion in policies whose surrender was blocked until October 2023, and the equivalent episode involving the FWU Group, Forward You, whose company is officially in judicial liquidation in Luxembourg, with around 120,000 clients involved.

It is as if these events legitimised, in clients’ collective imagination, the idea that surrendering was the rational choice to make, even in the absence of solvency issues affecting the companies that had issued the products in their possession.

Another decisive element to consider is the role of the distribution network. In a market where 74% of Life premiums are collected through banks, the increase in interest rates sometimes created the conditions for distributors to obtain an economic benefit from switching the client’s investment from an insurance-financial product to products offered by the same bank.

Subsequently, market mechanisms began to change. The first impulse came with the rate cuts decided by the ECB in 2024, for a total of 100 basis points. In addition, bancassurance distribution shifted decisively towards multi-line products, which are capable of generating significant capital gains in the new context.

The establishment of a Guarantee Fund for life insurance policies, introduced by the 2024 Budget Law, represented a further element strengthening clients’ trust in life insurance products.

Today, the market has found a new point of equilibrium, more centred on the combination of protection, investment and flexibility. But some challenges remain.

The first consists in moving beyond the idea that surrender is merely an exit from the product: in many cases, it anticipates a liquidity need, a comparison with alternative returns, or a difficulty in perceiving the value of the policy over time. It follows that the response cannot be merely defensive, but must become more selective, timely and consistent with the contractual conditions.

IVASS’s own analytical framework reminds us that the stability of liabilities also depends on product design, duration, exit options and the presence of biometric covers. In other words, the issue is not only to retain the client, but also to offer credible alternatives before the decision to surrender becomes binary.

The second challenge/opportunity concerns the active management of surrender risk. Rather than passively enduring it, the sector could develop predictive models to anticipate clients’ divestment intentions.

A significant contribution in this direction has come from Italian actuarial research: in 2023, the North American Actuarial Journal published a study by Italian authors proposing a two-part Beta regression model, specifically calibrated on real insurance portfolios.

The logic is simple and powerful: not merely recording the divestment when it occurs, but trying to anticipate it. For companies, this can translate into preventive contact with the client and the proposal of alternative solutions already provided for, where available, under the contractual terms, such as partial surrender, policy reduction or a policy loan.

This is a little-visible but certainly interesting frontier, because it transforms a moment of friction into an opportunity for dialogue and advisory.

Finally, the third challenge/opportunity is perhaps the most strategic: the renewed interest in asset management. The Life business can strengthen itself in this phase only by abandoning the logic of the rigid container and returning to present itself as a wealth management solution that is understandable, modular and responsive.

The 2025 figures show that recovery is possible. The companies that will perform best will be those capable of using the lesson of past surrenders as a starting point for rethinking their offering and client service model. The Life insurance industry has the opportunity to regain ground, but only if it can define a different approach, more focused on long-term wealth planning.