In the UK, there has been a lot of activity in relation to ensuring the protection of consumers buying general insurance products. On the back of the (relatively new) Consumer Insurance (Disclosure and Representations) Act 2012, there have been a number of FCA initiatives for increasing consumer protection and fairness and it can be said that the UK is striding forward in both reviewing practices and implementing change in this regard. It is therefore interesting to see what the European Insurance and Occupational Pensions Authority (EIOPA) is doing at European level in relation to customer protection and fairness in insurance. At the FCA’s General Insurance Conference at the beginning of this month, Manuela Zweimueller, EIOPA Director of Regulations, gave a speech on what she called, a “whistle-stop tour” of what EIOPA is currently doing and aiming to do to restore consumer confidence in general insurance products.
Set out below are the key points coming out of the speech, including some of the EIOPA initiatives in this arena that have been recently undertaken or are on-going.
- Consumer protection is EIOPA’s strategic goal number 1. EIOPA is pursuing its leading role in promoting transparency, simplicity and fairness in the market for consumer financial products and services.
- Consumer protection needs to be taken into account by firms, not just at the point of sale, but right from the point of designing of a product to the end of the product’s lifecycle.
- Consumer trust must be restored and only a proactive critical attitude can reinforce the trust and confidence of consumers. Regulation and supervision play an important role in ensuring that consumers have trust and confidence.
- Preventative supervision and timely enforcement contribute to healthy market competition and are critical to avoid customer detriment.
- The main objective of supervision is the protection of policy holders and beneficiaries. To be able to achieve this objective, all supervisory authorities should have the necessary means, the relevant experience, capacity and mandate.
- Solvency II is a major development from a policyholder protection perspective: it will ensure that undertakings are soundly managed and have a robust solvency position to fulfil their commitments. However, further certainty is needed on the EU regulatory framework and projects like IMD2 need to be finalised in order to set the new improved standards for transparency and selling practices in the insurance market at EU level.
Product oversight and governance
- Product oversight and governance should be at the top of the agenda of all boards of insurers. It is not enough for firms to design products and wash their hands of all responsibility once the product is in the hands of the distributor – insurers must put themselves into the shoes of the consumer when designing products.
- Following on from the high level principles on product oversight and governance produced by the three European Supervisory Authorities in November 2013, EIOPA is currently developing more detailed rules for the insurance sector and is aiming to launch a public consultation in Autumn 2014.
- The way in which insurance products are distributed to consumers is fundamental and by improving selling practices and avoiding conflicts of interest, insurers will service their customers better.
- EIOPA has identified that distribution in Europe is extremely diverse in terms of demographics, channels and regulatory approaches.
- EIOPA supports IMD2 and it believes that it can play a pivotal role in bringing about the objectives of IMD2.
- In relation to how general insurance intermediaries identify and manage conflicts of interest where they receive revenue from customers and insurers, EIOPA’s position is that they have a duty to protect all policy holders whether they are natural or legal persons and whilst they had been of the view that professional customers of insurance intermediaries were sophisticated enough not to require additional protections regarding information disclosure, the results of the FCA’s survey have given rise to further debate for EIOPA.
- IMD2 proposes a “product information document” for non-investment insurance products and this goes towards tackling the issue of information asymmetry which is a key source of consumer detriment in the sale of general insurance products.
- EIOPA are assessing (in their work programme this year) the benefits of standardised product disclosure document for non-life products such as motor insurance.
Ethical and Professional conduct
- Professionalism of distributors of insurance products is very important to EIOPA and distributors need to fully understand the products they are selling to consumers.
- EIOPA is expected to take a leading role in developing training standards for the industry; last year EIOPA published a report on knowledge and ability requirements for distributors of insurance products.
- EIOPA is disappointed that under the current IMD2 draft, professional standards would remain in the remit of Member States. They would like to see a more explicit role for EIOPA here.
- A number of aspects of comparison websites need to be carefully dealt with in order to avoid detriment to consumers. EIOPA recently published a report outlining good practices for websites that compare insurance products and they expect that the good practices will be adopted by the relevant market players and assessed by competent authorities.
It can be seen from this that EIOPA have prioritised consumer protection in relation to the sale of general insurance products. Member States regulators, for whom consumer protection has not yet reached a high point on the priority list, would do well to start careful consideration of local practices with a view to improvement along the lines of EIOPA’s guidelines.