The Central Bank of Ireland (the “Central Bank”) has recently published guidelines to which insurance undertakings, authorised as a life undertaking by the Central Bank should adhere to when distributing products in another EU or EEA member state or a third country on a cross-border basis.
The Central Bank has acknowledged that many insurers are currently operating to this “best-in-class” standard and that the Guidelines are aimed at ensuring that life insurance undertakings transacting such activity are adhering to a common standard. The Central Bank has also indicated that it will welcome submissions from insurers operating in this sector, and has acknowledged that the Guidelines will be updated periodically, following any such submissions.
Spanning areas from distribution to complaints handling, the Guidelines are designed to work in tandem with existing legislative and regulatory requirements imposed on life insurers operating on a cross border basis out of Ireland. Notably, elements of the Consumer Protection Code (which does not apply to insurers operating on a cross border basis out of Ireland) are incorporated into the new framework.
The Guidelines should not be taken as a replacement for existing requirements and should, instead, be used as a working guide as to best practice in the industry. We have set out a brief summary of the main points of the Guidelines below.
- An insurance undertaking’s board should be able to demonstrate that an individual board member or a senior individual within the entity has been given responsibility for ensuring compliance with the Guidelines.
- The board should be able to demonstrate, prior to launching in a new territory / country, that sufficient management information has been presented to the board and that the board has approved the information (the Guidelines provide a list of the minimum information to be provided).
- If an entity is operating in different markets, it should identify company best practice and operate this in a consistent manner in all markets.
- Specific steps are set out in the Guidelines that must be completed by an entity when entering into any arrangement with an intermediary for the distribution of its products.
Product design and marketing products
- An insurance undertaking must ensure that the name of its product is not misleading in terms of the benefit offered.
- When designing a product, the insurance undertaking should identify the product’s suitable target market, the risks inherent in the product, any limitations on any guarantee and identify the guarantor and, where a product is being sold outside a suitable target market, take action to redress such instances.
- Information provided to intermediaries must be clear, accurate, up-to-date and not misleading, so as to allow the intermediary to make a determination whether a product is suitable for a particular consumer.
- Insurance undertakings should check whether the product is continuing to meet the demands of its target market, at least on an annual basis, and if necessary, to reassess the product to identify the suitable consumer type, update the information provided to the intermediary, and notify the Central Bank.
- Mechanisms should be implemented to ensure that local rules and requirements concerning the distribution of products in cross-border territories are adhered to. This includes conduct of business rules, local sales and remuneration rules and legislation relating to commission.
- Insurance undertakings should not knowingly engage in distributing products to third countries if they are aware that the product would be in breach of local legislation in the third country.
- The launch of a new product and / or territory not previously communicated to the Central Bank constitutes a material change to the business plan, and as such, requires prior approval of the Central Bank. Additionally, if a change in the business plan involves distributing through non-EEA intermediaries or to non-EEA residents, the entity must take appropriate legal advice to confirm that such distribution is not precluded.
- Distribution agreements with intermediaries should contain certain specified items (listed in the Guidelines).
- An independent control function must carry out an annual check that all intermediaries, with which an entity has a distribution agreement, to ensure that they continue to be regulated. Intermediaries should also understand the business model of the undertaking as it applies to distribution and must provide training to sales staff on its products.
- Insurance undertakings must monitor sales to ensure that there is no undue focus on selling products to demographics of customers for which the products are plainly unsuitable. Early terminations or transfer of policies should also be monitored.
Errors, complaints handling and communications with policyholders
- Insurance undertakings should review, monitor and test their internal control systems regularly to provide reassurance that the potential for errors is minimised.
- Insurance undertakings must speedily, efficiently and fairly, correct errors that have or may result in consumer detriment and must do so within six months. If an undertaking fails to resolve the error in accordance with this requirement, and if it will not have resolved the error within one month, it is required to inform the Central Bank in writing of this fact.
- A log of all errors identified should be maintained and must record all steps taken to resolve an error.
- An entity is not permitted to benefit from any balance arising out of a refund, which cannot be repaid, in respect of an error. •Insurance undertakings should have a written procedure for the proper handling of complaint, however, this procedure need not be followed if the complaint is resolved to the satisfaction of the consumer within five days.
- An up-to-date record of all complaints subject to the complaints procedure should be held.
- If a consumer makes a verbal complaint, the Guidelines require the undertaking to offer the consumer the option for it to be treated as a written complaint.
- Insurance undertakings should carry out regular spot checks and / or surveys to ensure that new policyholders across all intermediaries and markets are satisfied with the service and the product.
- With regard to correspondence with consumers, the Guidelines provide that where a consumer elects to have all correspondence from the insurance undertaking to be directed to an intermediary, a written declaration must be obtained from the consumer