Cradle to grave insurance: how Swedes pad margins on automated loyalty

Sweden has taken its famed cradle-to-grave care approach into the private insurance realms, building a model that turns a prenatal personal accident policy into multi-decade retention and further pads margins and avoids inflation threats with built-in policy caps.

Swedish insurer Tryg spent its late June investor day selling its successes in personal accident insurance with select add-ons for medical diagnoses, an exclusively Swedish product which insurers push on expecting parents can and hope to retain through a child’s entire lifetime.

“A significant portion of strength has been built on a comprehensive set of personal accident insurance products,” management said in the key message of its late June presentation.

The overall Swedish market for such policies is growing at a compound average annual growth rate of some 4%, hitting SKr10.4 billion in 2021.

Loyalty is borderline automatic: over half of pregnancy policies turn into child policies where average retention runs to 22 years. Some 70% of child policies go on to become adult policies. Adult sales claim average retention of some 36 years.

Clients are likely reluctant to switch providers given requirements for medical checks, management reportedly argued for event participants.

Profitability is partially built into the products on benefit caps which additionally protect the long-tail line from the impact of inflation. Caps set at a percentage of insurance totals and at fixed amounts for select events or diagnoses.

“We continue to be impressed by the stickiness and profitability of this product, which is unique to Sweden,” analysts at the Berenberg investment bank said in a note to clients following the meeting.

“The PA product is better positioned to withstand inflationary pressures,” Berenberg analyst Michael Huttner wrote. Tryg “is not exposed to unexpected rising medical care, hospital treatment costs or wage inflation.”

That leaves margins a function of frequency, forcing the market’s attention on emergent trends that should show up quickly in terms and pricing, Huttner adds.

Combined ratios across the market have held a tight range from 89% to a one-off bump to 94% over the past five years. Berenberg estimates at roughly 70% combined ratio on the product at Tryg.

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