Published in BSL, Business Switzerland Luxemburg

In the Swiss financial centre, considered as the world capital of wealth management, the Luxembourg life insurance mechanism has now become commonplace and firmly anchored. It now forms an integral part of the landscape of solutions used when it comes to optimizing the management of financial assets for mainly European clients, all or part of the whose movable assets are deposited and managed in Switzerland.

The combination of Luxembourg insurance solutions and Swiss asset management expertise is also gaining ground with each new crisis, be it a budget, economic or stock market one. And the recent health crisis that we have been experiencing for almost 8 months is no exception to the rule.

In times of uncertainty, the general level of solvency and the concept of state protection in the event of default which characterize the Luxembourg insurance industry go hand in hand with the quality of the Swiss financial players, not only in their role as depositaries, but especially as longterm managers. Beyond the notion of refuge, a role that life insurance plays in full, it is above all the expertise in terms of the management underlying the insurance contract which is in demand today in Switzerland and which attracts an ever- growing number of European clients. Whether it be for access to sophisticated management tools, multi-currency management solutions or even assets uncorrelated with the markets or traditional assets such as Private Equity investments. In this respect, the security of Luxembourg, the advantages of life insurance, which are among others enhanced management performance after tax, administrative simplification or integrated planning, all combined with tailor-made management, as it still takes place in Switzerland despite increasingly restrictive regulatory requirements, form a very coherent package.

It is therefore interesting to note that an increasing number of Swiss managers and bankers are now making the insurance tool a vehicle of choice both in dealing with cases of existing customers and potential customers. Indeed, the Luxembourg insurance mechanism allows Swiss financial players to offer their European clients a solution which is just as efficient when it comes to tax and wealth as those which the latter would find at home but by integrating their own management solutions or tools.

However, the notion of insurance intermediation still has to be integrated into this almost perfect equation, i.e. the link between the insurer located in many cases in the European capital of the sector, Luxembourg, the client residing in the European Union and the manager or banker located in Switzerland. The latter is often bound by rules of a cross-border nature preventing any intervention beyond Switzerland’s borders. This is where the broker specializing in insurance solutions comes in. The latter’s role, added value and responsibilities have been considerably strengthened since the advent of the European insurance distribution directives, “IDD”, in 2018. Considered as the “MIFID” of insurance, the adoption of this regulatory framework has contributed to an overhaul of the methods of insurance distribution and advice. They aim above all to strengthen the position of the client or “consumer”, establish their rights and clarify the responsibilities of their counterparts within the advisory sphere surrounding them.

The Swiss market has until recently been a favourite one for Luxembourg insurers in terms of the direct marketing of their solutions (i.e. without resorting to external distribution channels such as brokerage players). Insurance companies most often approach the Swiss financial community directly through agents. However, the tide is turning and the entire community of Swiss financial advisory players is gradually realising the scale of the risk associated in many cases with direct distribution, not systematically or always in accordance with good practices, particularly in terms of its cross-border characteristics. The new wind blowing in the sails of specialist brokers who have recently entered Switzerland is also due to the fact that several of the major players in Swiss asset management have decided to focus on their core business lines, abandoning the notion of insurance consulting to entrust this responsibility to specialized brokerage players. For Swiss financial players who have decided to turn to specialized brokers, this involves outsourcing a well-defined consulting service in the field of life insurance or capitalization tools.

Brokerage specialists are therefore used who have the infrastructure required by regulation, while at the same time eliminating the wellknown risk of advising (and with it that of providing insufficient advice).

Therefore, in the Swiss wealth management market, the distribution and advice relating to foreign life insurance solutions, especially ones from Luxembourg which are intended for non-resident clients, is currently experiencing a profound change which seems irreversible. Today we are witnessing a specialisation of services and the establishment of a value chain in which each player assumes a specific role in a context of well-defined responsibility and added value. At the top of this pyramid there will be the manufacturer (the insurance company), then the distributor (the specialized broker or qualified intermediary), then within the insurance package comes the manager (bank or independent manager) and finally the depositary banker.