On 13 April 2016, the European Insurance & Occupational Pensions Authority (EIOPA) published its FinalReport on Preparatory Guidelines on Product Oversight and Governance arrangements by insurance undertakings and insurance distributors(the "Guidelines"). The Guidelines are aimed at supporting national supervisors in the consistent implementation of the product oversight and governance requirements contained in the Insurance Distribution Directive (IDD), which must be transposed into Irish law by 23 February 2018. The Guidelines provide useful clarification on EIOPA’s expectations regarding the arrangements which manufacturers and distributors are to establish and maintain in order to be compliant with the formal requirements of the IDD.
The Guidelines are addressed to national supervisors which have two months to state whether or not they intend to comply or to inform EIOPA of any reasons for non-compliance. As the Guidelines are preparatory in nature, EIOPA states that it is not intended that national supervisors would take enforcement action on becoming aware of practices that are not fully in line with the Guidelines. In such instances, EIOPA indicates that supervisors should discuss with the relevant firms possible ways for appropriate remedial action.
EIOPA will review the Preparatory Guidelines once the deadline for transposition of the IDD has passed to assess the extent to which a revision of the Guidelines is necessary.
The first chapter of the Guidelines is aimed at insurers and intermediaries who manufacture life and/or non-life products for sale to customers (the "Manufacturers"). The second chapter addresses insurance distributors which distribute products they do not manufacture (the "Distributors").
Manufacturers are required to:
- Identify the target market for which each insurance product is designed
- Align each product with the interests of that market
- Use appropriate distribution channels to get every product to its target market
Manufacturers will also be required to test their products before selling them to customers and to take appropriate action to mitigate any unforeseen risks that arise over the life of their products.
In addition, the Guidelines foresee that Distributors will be required to:
- Obtain the Manufacturer’s relevant target market information (if not automatically provided to them)
- Ensure they properly understand the information received
- Ensure they do not act in a manner inconsistent with the Manufacturer’s specified distribution strategy and target market information
The Guidelines also clarify that the boards of the respective Manufacturers and Distributors (even in case of outsourcing) bear ultimate responsibility for the establishment, implementation, subsequent reviews and continued internal compliance with the product oversight and governance requirements.
It is noteworthy for insurers that the Guidelines purport to have "a substantial link" to the system of governance under the Solvency II framework which requires insurers to have a sound and prudent management of the business including an appropriate risk management system. The Guidelines state that organisational arrangements aimed at ensuring a correct design of insurance products fall within the system of governance of an insurer.
To view the Guidelines in full, please click here.