The European life insurance market: On its last legs?

More findings from the report include:

• 48 percent of life insurers indicate that the low interest rate environmnet is currently driving business decisions
• 56 percent suggest that unless yeilds increase, they will need to radically overhaul their business model in order to protect performance and profitability
• 64 percent of life insurers admit that there is pressure on their business to "over-reach" for yields as they seek to enhance returns and profits
• 46 percent say that low yields will lead them to pursue riskier investment strategies

These effects will be passed on to the consumer. For policyholders:

• 74 percent of life insurers will change their products to reduce benefits to policyholders if the low yield environment persists over the next three to five years
• 62 percent are currently redesigning their product terms and will continue to do so over the next 12 months
• 43 percent of life insurers will lower gaurantees by up to 1 percent
• 18 percent will lower them by more than 1 percent 
• 24 percent will continue to reduce gaurantee levels over the next 12 months

With 55 percent of life insurers fearing that the reality of affordable life insurance in Europe is at risk, consumers — and the wider European economy in general — will be affected by the consequences. Even so, there is a, however thin, silver lining.

"The European life insurance industry has so far proved to be resilient, with no significant failures, despite the extreme challenges of the financial crisis and its aftermath," said Wolfgang Krauel, global insurance sector co-leader at Linklaters. "The current environment presents an excellent opportunity for life insurers both to plug the gaps left by banks with alternative investments — for example, in infrastructure — and also to provide liquidity to banks via liquidity swaps."

Only time will tell if the life insurance industry, both overseas and in the U.S., will remain competitive in a consistent state of low interest rates.