In the following section from the modern group we will only analyse the unit linked
insurance in detail, since the Critical Illness and Long Term Care type insurances have not
yet appeared, or at least are not really popular in the Hungarian market, and on the other
hand because apart from extending the concept of insured event – that is, by the way, also
important – in other respects they follow traditional insurances quite well.
1. The Unit Linked life insurances was the great novelty of the Hungarian life insurance
market in the ‘90s, that very quickly gained a significant market share from the total life
insurance market, and its portion is still growing steadily at the expense of the other life
insurance products that are called “traditional products” starting from their appearance.
2. These unit linked products have significantly changed our views of life insurance and our
expectations from regulation (that regulation has not always followed). Unit linked insurances
have made a great step toward making life insurance products more transparent to clients,
and gave them new kinds of options compared to the former ones, but in return also gave
the clients more responsibility in handling their own financial affairs.
3. Summarizing: the unit
linked insurance expects a consumer who is more mature than the former one, and in a
certain sense it also “raises” a more mature consumer.
4. Traditional life insurance has a more than 100 year past of settled, refined format and
product design, and a well constructed, closed, independent calculation methodology and
notation system. The basic traditional life insurance policies were signed even in the 19th
century practically (regarding the most important features) in the same form as nowadays.
5. This product design reflected well the age and the environment in which it was created and
formulated. The most important characteristics of this environment (from our point of view)
were the following:
• the stability of money, low or no inflation, stable (usual) interest rates
• paper based, manual administration
• only a very small, selected part of the upper classes had access to the capital
markets
• relatively low life expectancy and therefore large mortality risk – paired with typically
high birth rates
6. These characteristics had a fundamental impact on the construction of long term insurance
of that time (that is – with a little uncertainty – almost the same as the presently available life
insurances). The most important elements of this product design are the following:
• The incidences related to the life insurance policy starting from its signature until its
termination are tied to a fixed, rigid “scenario” allowing only a few variations (that
means that the premium term, premium frequency are specified in advance and
cannot be changed, the reserve runs on a pre-calculated path, etc).
• The most important parameters of the insurance (premium, sum assured, yield of
reserve, term) are specified in advance and fixed.
• They tried to avoid all in-between changes (raising or decreasing the premium,
changing the insurance term, changing the face amount, changing the dates of
premium payment), or place these changes outside of the product design (e.g. they
regarded late premium payment – from the reserve aspect – as if it had arrived on
time, but charged a late interest to compensate for the profit loss, etc.
Regarding the product design all traditional life insurances can be built from two basic
building blocks, two final elements: the term insurance and the pure endowment
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