Following its consultation in February, the European Insurance and Occupational Pensions Authority (EIOPA) published its final guidelines on complex IBIP under the IDD (Guidance). The Guidelines have been developed pursuant to Articles 30(7) and (8) of IDD and apply to execution-only sales of IBIPs and are aimed at minimising the risks to consumers arising from mis-selling of products in Europe’s 10 trillion funds market.
IBIPs are insurance products which offer a maturity or surrender value and which are also affected by market fluctuations. Examples include unit-linked life polices or life policies with profit sharing/participation. Execution-only sales are typically completed via telephone or online and where the insurer or insurance distributor does not provide any advice or verify the customer’s knowledge of the product and the risks involved.
The Guidelines include an assessment criteria which will assist in identifying product features that are difficult for a customer to understand. By way of example, charges paid by the customer or the ability to surrender the product before maturity are features of a product that cannot be sold via “execution-only”. The Guidelines consider how product charges and surrender fees and traditional and pooled investment products should be treated. The mere presence of profit-sharing would not automatically mean that a product is labelled as complex and therefore precluded from being sold via “execution-only”.
From January 2018, where the associated risks of an IBIP are difficult to understand for customers, a comprehension alert has to be included in the key information document issued to the customer. EIOPA’s chairman explained that the purpose of the Guidelines is to ensure that, when using distribution channels, insurers and brokers will need to consider carefully if their products and associated risks can be readily understood. The Guidelines will regulate the appropriate use of “execution-only” sales of IBIPs and will help regulators spot features that can make a product difficult to understand.