Introduction
Insurance is an essential financial service for risk management to the public and businesses. It implies the compensation payment in case of insured events covered by the contract, also called the policy document, between the company and the recipient of services (Guirguis, 2018). For example, insured cases can include fire, car accidents, theft, illnesses, or other situations. Insurance is a convenient risk transfer mechanism that helps reduce adverse circumstances’ impact and protects from financial losses (Guirguis, 2018). Insurance companies benefit from their services as their customers make regular contributions to pay for them. Each country has different insurance systems, companies, and related regulations. This paper focuses on comparing insurance services in UK and Germany.
Insurance companies constitute significant markets in UK and Germany and offer many services. Various insurance products are present in countries, which can be divided into life and non-life markets (Bonnard et al., 2020; Korte, 2020). Insurance within the framework of the first category is aimed at maintaining the well-being of citizens and, in the second – reducing financial losses in the event of risks to property. As the further analysis shows, insurance in Germany and the UK have similarities and differences in products, regulations, and trends.
Comparing the UK and German Insurance
Regulations
Insurance in Britain and Germany are significant markets that require regulation. The primary law for the insurance industry in both countries is the Solvency II Directive, adopted in the European Union (Scoville et al., 2020). However, after Brexit, it is subject to changes and adaptation to improve regulation within the UK (Scoville et al., 2020). The UK Association of British Insurers (ABI) is a leading insurance industry representative body that helps protect parties’ interests in the market (“Insurance in the UK,” 2022). According to their data, Britain is characterized by a twin peaks system of regulation, as two key bodies that represent it are the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) (“How our industry,” n.d.). The PRA protects policyholders and maintains the reliability of insurers, and the FCA regulates the behavior of insurance companies (“How our industry,” n.d.). Such a system is designed to ensure the stability and reliability of the industry.
The regulation of the insurance market in Germany is different from the British system. The primary law for the industry is the Insurance Supervisory Act, which was reformed under the influence of Solvency II (Gal, 2020). The Federal Financial Supervisory Authority (BaFin) is the primary regulator, and insurance representatives are united within the German Insurance Association (“Insurance in Germany,” 2022). In addition to insurance, BaFin regulates the entire financial system, ensuring the reliability of markets and the professional behavior of their representatives (“Functions & history,” 2020). Their united system aims to protect the population’s and industry’s interests.
Comparing the two insurance systems, one can assume that each has disadvantages and advantages. A single system of financial services regulation controlled by BaFin can ensure a more consistent and coherent operation of the entire industry. However, this feature makes BaFin the dominant player in the sphere, which can affect its objectivity and lead to abuse of duties. In addition, Britain previously had one key regulator, the Financial Services Authority (FSA), which was reorganized into the PRA and FCA (“How our industry,” n.d.). Now, their system can provide greater transparency and control over market representatives and authorities. Nevertheless, both countries strive to protect their citizens’ interests and well-being through insurance.
Insurance Types
Depending on what is protected by the policy, insurance has different types. Following ABI, insurance products in the UK cover business, health, home, motor, pet, travel, mobile phone, life coverage, savings and pension issues (“Choosing,” n.d.). These areas may include their subtypes; for example, employees’ liability, building insurance, and other insurance forms are present in the business sphere (” Insurance in the UK,” 2022). German insurance products include life, pension, health, home, motor vehicle, travel, accidents, and cyber insurance (“Insurance products,” n.d.). Third-party liability insurance is a special type in Germany, which includes payments to other individuals who have suffered due to policyholders (“Insurance products,” n.d.). Thus, citizens of the considered countries can provide insurance in many aspects of their activity.
At the same time, countries prioritize various types of insurance in different ways, making them mandatory or optional for the population. National Insurance (NI) payments are mandatory in the UK for employees and self-employed workers (“National Insurance,” n.d.). NI usually accounts for about 12% of an individual’s earnings and is directed to social benefits – pensions, childcare payments, and unemployment benefits (“Insurance in the UK,” 2022). The purchase of insurance is mandatory with a motor vehicle as well. The policy document is a mortgage offer condition and obligatory for landlords (“Insurance in the UK,” 2022). Other areas of insurance are optional but provide significant benefits to policyholders. For example, although health care is free, insurance can guarantee faster receipt of services, making it possible to contact private providers without staying on the waiting list. Considering all insurance products, the prioritization demonstrates the country’s emphasis on social well-being.
The German population is very responsible in addressing insurance issues. The policy document for healthcare is mandatory for residents of the country (“Insurance in Germany,” 2022). Health insurance is related to the place of work – the employer covers half of the costs (“Insurance in Germany,” 2022). The working individual also makes additional insurance payments for pensions, unemployment benefits, and accidents (“Insurance in Germany,” 2022). Finally, motor vehicle insurance is mandatory, and other forms are optional (“Insurance in Germany,” 2022). The country also emphasizes the importance of ensuring population security and social well-being.
Thus, German and UK insurance products have several similarities and differences. Both countries emphasize social benefits and the safety of vehicles. However, health insurance is not mandatory in the UK like in Germany. Home insurance is not requested in mortgage offers in Germany compared to the UK. This choice of priorities has its features and implications. For example, health insurance can become a financial burden for an individual. However, the free health care system not requiring insurance has drawbacks, like the difficulties of making an appointment with a specialist. Home insurance has advantages in reducing financial risks, but one may consider it an unnecessary obligation. The differences reflect some peculiarities in the country’s laws and established activities.
Key Trends
The insurance industry in the UK and Germany is changing under the influence of various factors. Nowadays, the key trends that affect all countries are digitalization, the problem of attracting talented employees, and the global pandemic (Deloitte, 2022). Companies are increasingly dependent on technology to improve their efficiency and remain competitive; therefore, digitalization is one of the most influential factors. The use of technology requires new skills from employees, so the issue of attracting people with needed competencies to the organization arises (Deloitte, 2022). Finally, the global pandemic caused by COVID-19 has created additional threats to the population’s safety and, consequently, new problems for insurance, especially in health care. Moreover, the need for distance and remote work emphasized the importance of technology in the activity of any company. Therefore, insurance firms in the UK and Germany are busy adapting their work to new realities.
External influence also changes customer preferences on insurance products and market stability. In particular, the situation in Britain remains uncertain – insurance prices have risen for many products (Staff, 2021). At the same time, the population is increasingly turning to cybersecurity insurance products (Staff, 2021). In Germany, the key focus remains on health and auto insurance (Meredith-Miller, 2022). Moreover, experts note the country’s economy’s recovery and the industry’s gradual growth (Meredith-Miller, 2022). However, development has slowed due to the pandemic and the recent geopolitical crisis in Europe – Russia’s invasion of Ukraine (Meredith-Miller, 2022). Thus, the insurance industry is quite sensitive to external influence, and companies must adapt to changing conditions in both countries.
Conclusion
In conclusion, insurance is an integral part of financial services in both Germany and the UK. Insurance does not protect against accidents, diseases, and other risks but helps cover losses and mitigate the financial consequences of various incidents for policyholders. The considered countries have different systems of industry regulation – in the UK; it is represented by two key bodies, and in Germany by one. They have similar insurance products with only a few differences. In some cases, the purchase of insurance is mandatory by law, and in other cases, citizens choose its use on their own. In the UK, vehicle and home insurance are compulsory, and in Germany – healthcare and vehicle.
The insurance market is changing under the influence of various factors and trends. Germany and the UK suffered from the pandemic, which brought new tasks for insurers, and the impact of the geopolitical crisis in Europe slowed economic development. Significant trends in the industry are digitalization and attracting talented employees with appropriate skills and competencies. New technologies are used in various work processes, drawing attention to cybersecurity issues. Therefore, insurance companies in the UK and Germany are changing and developing to continue to attract customers.
References
Bonnard, R., Reid, B., Burtwell, S., Tufts, J., & Reed, R. (2020). 2020 UK insurance outlook. Ernst & Young Global Limited.
Choosing the right insurance. (n.d.). Association of British Insurers.
Deloitte. (2022). 2022 Insurance industry outlook. Deloitte Center for Financial Services.
Functions & history. (2020). Federal Financial Supervisory Authority.
Gal, J. (2020). Corporate governance of insurers in Germany. German national report. Zeitschrift Für Die Gesamte Versicherungswissenschaft, 109(1), 41-64.
Guirguis, M. (2018). The UK insurance market.Social Science Research Network (SSRN), 1-48.
How our industry is regulated. (n.d.). Association of British Insurers.
Insurance in Germany. (2022). Expatica.
Insurance in the UK. (2022). Expatica.
Insurance products. (n.d.). Federal Financial Supervisory Authority.
Korte, T. (2020). 2020 Germany insurance outlook. Ernst & Young Global Limited.
Meredith-Miller, B. (2022). German insurance industry could grow to $229.6 billion by 2026. Property Casualty.
National Insurance: Introduction. (n.d.). Gov.UK.
Scoville, J. C., Swirski, C., & Lyon, B. (2020).Insurance and reinsurance in the UK (England and Wales): Overview. Practical Law.
Staff, R. (2021). A more stable UK insurance market but challenges remain for 2022. Aon.