European Developments

Many insurers and intermediaries are looking for guidance on what regulators view as being an appropriate way to manage conflict of interest that might arise when selling insurance products.  With this in mind, a discussion paper (which can be viewed by clicking here) that EIOPA has published on conflicts of interests that arise for certain insurance products is timely.

The discussion paper sets out EIOPA’s view (albeit for specific types of products) on what amounts to a conflict of interests, and why those conflicts matter. The discussion paper also considers:

  • Criteria for identifying types of conflicts of interest that might harm customers
  • Steps to be taken in identifying, preventing, managing and disclosing conflicts of interest

In July 2014, Gabriel Bernardino (Chairman of EIOPA) said that addressing conflicts of interest is a solution to what he described as a ‘severe market failure’. He added that it was not a case of producing rules for the sake of making rules.  Mr Bernardino emphasised that EIOPA is mindful of the fact that rules for very small intermediaries and very large undertakings might have to differ, but went on to say that all rules must be designed to reach a common goal of customer protection.

Domestic Developments

In July 2014, the Central Bank published guidelines on variable remuneration arrangements for sales staff (which can be viewed by clicking here). The Remuneration Guidelines have been published following the Central Bank’s recent themed inspection across the banking, insurance and investment sectors, which looked at variable-remuneration practices in those sectors. 

The Central Bank noted that incentive schemes examined by it were found to have risky elements, and had the capacity for sales staff to earn substantial bonuses that were based on volumes of sales. Regarding its review of insurers, the Central Bank expressed its satisfaction that, where risky variable-remuneration structures and/or components were identified by the Central Bank, the response from insurers was constructive.

Action Points

  • By 1 January 2015, chairmen of all banking, insurance and investment companies within scope of the sales-incentive review are required to report to the Central Bank confirming that they have undertaken a review of the sales incentive/remuneration arrangements within their firms, and that relevant changes have been implemented by 1 January 2015.
  • In the first six months of 2016, companies in the three sectors will be required to have their internal-audit function conduct a review of changes implemented to their remuneration arrangements.  The audit results will have to be communicated to the Central Bank and may be used as part of any of the Central Bank’s follow-up work with firms. During 2015/2016, the Central Bank will review the implementation of the Remuneration Guidelines.