What do insurers need to do now to position themselves for the Altersvorsorgedepot (retirement savings account)?

The Altersvorsorgedepot is bringing new momentum to the German retirement savings market and is increasing competitive pressure. Burkhard Oppenberg, former CIO of Gothaer Versicherung and member of the Board of Directors of BSI Software, shares his perspective on why banks and brokers currently still have an advantage and what insurers need to do now to stay competitive going forward. 

The Altersvorsorgedepot is undoubtedly reshaping the competitive landscape for life and retirement insurers. Banks, brokers, and asset managers are set to play a much more significant role as competitors than they did with Riester pensions.  

From a technology standpoint, banks and brokers have a significant competitive advantage over insurers when it comes to this new product. They already have the investment platforms and the necessary infrastructure in place. This gives them a clear advantage both in terms of digitizing the sales process and in terms of scalability.  

The key product differentiator I see for insurers, in other words, what they can do better or differently than banks, is the coverage of traditional longevity risk. That is something banks simply cannot deliver with this product. For example, if the assets held in a retirement savings account are exhausted at age 85 and the individual outlives that age, the new model may leave them without any further retirement income. Insurers, by contrast, can guarantee lifetime annuity payments. And this is precisely one of the core functions of insurance: providing protection against longevity risk. If insurers place greater emphasis on this aspect, particularly since many people substantially underestimate their own life expectancy, they can turn it into a genuine product-driven competitive advantage. 

I remember speaking with brokers as early as last spring. Some of them were already well into implementation at that point, even though the regulatory framework had not yet been fully defined. In contrast, many insurers were still debating the product at that time, with very little actual implementation underway. 

Many of the insurers I know got off to a relatively late start and are now facing significant time pressure. Most of them will likely be able to launch a product for end customers. The bigger challenge, however, will be delivering a fully digital end-to-end sales process. This could lead to insurers prioritizing the launch of the product and only investing in the automation of the underlying processes at a later stage. The result is not only an operational challenge, but also a substantial cost burden. 

At the same time, insurers are unlikely to earn the same level of commissions from this product that they were able to generate from products such as Riester pensions in the past. After all, one of the main criticisms of Riester pensions was their high distribution costs, coupled with the complexity created by government requirements such as the subsidy system. 

Insurers will primarily distribute the product through their tied-agent sales force, much as they do with traditional life insurance and annuity products, and, to a lesser extent, through bank branches. In doing so, they face a twofold challenge. On the one hand, they will need to continue offering attractive commissions to their tied-agent sales force, which will significantly impact the product’s profitability. At the same time, they face a scalability challenge. They are unlikely to achieve the same level of automation that brokers will have in place from day one. 

It is therefore reasonable to assume that insurers will need to subsidize the product. Otherwise, they risk more than just losing customers for this specific product category to brokers. As a gateway product, it allows brokers to establish the customer relationship first. They can then leverage that relationship to cross-sell additional investment products digitally and at very low cost. Over time, they could gradually gain further ground at the expense of insurers in their traditional life and retirement insurance business. 

Insurers essentially need to focus on their core strengths and find ways to leverage those strengths more consistently. At the product level, as mentioned earlier, the key differentiator is protection against longevity risk. It is one of the core strengths of insurers. While they already highlight it to some degree, I believe it needs to be positioned far more prominently. 

Their second major strength lies in personalized advice. Particularly when it comes to retirement income planning and determining how much income people will actually need in retirement, a more holistic advisory approach is needed. Because these products alone will generally not be sufficient to close the retirement income gap. Going forward, workplace pension plans¹ will therefore become increasingly important, as is already the case in Switzerland with its Pillar 2 system and in the Netherlands. 

That’s why advice on retirement income and planning will continue to be critically important. Insurers that succeed in truly leveraging this strength through their exclusive sales channels will, in my view, continue to have opportunities to cross-sell additional products beyond this single retirement product. 

Today, for many insurers, the relationship effectively ends once the policy is sold. Customers purchase a retirement insurance product and then often hear little or nothing from their provider for years afterward, until they begin receiving benefit payments. And that is precisely where a major opportunity presents itself. Insurers need to deliver on their promise of supporting their customers throughout their entire working lives and take a more active and holistic role in retirement planning. After all, many people lack a clear picture of what their financial situation in retirement will actually look like. Insurers that can fill this gap through high-quality advice have an opportunity to turn a single retirement product into an active, long-term customer relationship and offer additional relevant products within the broader context of retirement planning. In practice, however, I still see too few insurers taking a truly consistent approach to this. 

Technology will become a critical prerequisite for long-term competitiveness. Retirement savings products are ultimately mass-market products. Insurers therefore need to automate them far more extensively, from the product itself and the investment management to fund switching and the direct digital customer interface. Otherwise, they will find it difficult to compete on cost with highly automated brokers over the long term. 

At the same time, AI needs to play a much bigger role in the sales process. Today, the focus is often still on using AI to improve operational efficiency. The potential of AI in the advisory process, by contrast, remains largely untapped. For example, AI can support advisers during conversations with their customers, document information as it is collected, or even prepare tailored offers in real time. These are all capabilities that are already possible through agent-based AI in the BSI Customer Suite. 

Personalized advice through insurers’ own agency networks can remain a competitive advantage, but only if the underlying technology is up to the task. Many existing agency and policy administration systems were not designed for this. Significant investments in automation, next-generation platforms, and AI-enabled capabilities are still needed. 

The goal should not be to use AI merely to accelerate the sales process. Technology should help improve the quality of advice and enable long-term customer relationships that extend well beyond the initial sale.

First: The systematic modernization of the IT landscape. We are entering a phase in which the strongest players will pull ahead. Many insurers, for example, are significantly behind in modernizing their policy administration and cross-functional systems as well as their data landscape, largely due to chronic underinvestment in IT over the past decades. As a result, they will find it increasingly difficult to keep pace with the market. That does not mean they will disappear overnight, however. Many have substantial policy portfolios and, as mutual insurers², are subject to different profitability requirements. However, I do not believe that all of the roughly 350 insurers currently regulated by BaFin in Germany will still be around in the years ahead. Rather, I expect the market to continue consolidating.

Second: Continue to systematically advance the data landscape and digitalization. This includes the systematic development of a state-of-the-art data landscape, as well as the digital transformation of the entire distribution process, spanning the broker channel, the tied-agent sales force, and the direct customer interface. To me, these topics remain key prerequisites for long-term viability.

Third: Leverage AI as a targeted accelerator. AI will not magically resolve the structural challenges, but it can significantly support modernization efforts, for example in the replacement of legacy systems. Organizations that do this well can already modernize faster, with higher quality, and at lower cost. However, I do not yet see these opportunities being widely leveraged across the market.

That's why, more than anything else, speed is of the essence. Many insurers are still not investing enough, implementation is taking too long, and these topics are not receiving the priority they deserve. There are notable exceptions, but for a large part of the market, one thing is clear: The pace needs to increase significantly.