The average annual per capita spending on unit-linked insurance in the Republic is far higher than in other European countries says market analysts Datamonitor. At £528 (€670) it surpasses the UK (£454), Holland (£347) and Sweden (£282). Unitlinked policies transfer the element of risk from the insurer to the investor.

Unit-linked insurance is the term used to describe life insurance and pension premiums which are linked to the value of a fund, usually consisting of equities, but sometimes made up of bonds or property, depending on whether the provider itself manages the fund or outsources it to a specialised fund management outlet. In contrast to traditional insurance policies, which guarantee fixed rates of return, unitlinked policies fluctuate according to the value of the fund.

Due to the long-term nature of the policies, however, the volatility associated with short-term equity investment is smoothed resulting in returns in investment that are potentially very high.

Amid rapidly changing demographics in Europe and repeated governmental signals that existing systems of state provision will not continue indefinitely, unitlinked insurance represents an attractive option for people seeking a comfortable retirement, says Datamonitor.

The total European unit-linked insurance market has been growing at 25 per cent per year since 1995. Capital has been transferred from traditional "with-profits" policies into unit-linked which, although a mainstream product since the 1960s in Britain and the Republic has only emerged in the last few years in many European countries.

This trend reflects the increasingly astute nature of European consumers, who are no longer satisfied with traditional life and pensions products. They are becoming increasingly strident in their demand for transparency, flexibility and higher returns, says the market analyst firm.

Traditional insurance, which in an economic climate of low interest rates and low inflation cannot match its returns, has been declining in importance in recent years. Datamonitor's new report reveals that from 1995 to 1999 unit-linked insurance's share of the life and pensions market rose from 37 to 62 per cent in the Republic, 11 to 31 per cent in France yet inexplicably by only 2 to 4 per cent in Germany.

Consumers are attracted to these products because of their greater flexibility, fee transparency and potentially higher returns.