The European Insurance and Occupational Pensions Authority's (EIOPA) recently published report on Consumer Protection Issues arising from the sale of Mobile Phone Insurance (MPI) makes a number of recommendations to address the gaps EIOPA found to exist between consumer expectations and European insurers' MPI products.
The report also highlights the measures set out in the now agreed text of the Insurance Distribution Directive (IDD) that EIOPA expects will go some way to implement its recommendations.
The UK has one of the largest MPI markets in Europe, with most MPI products being sold on an exempt basis under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 "connected contracts exclusion". UK insurers that distribute their MPI products through exempt channels, such as mobile phone retailers, are already required to ensure that the retailer provides customers with ICOBS compliant policy documentation and that complaints and claims are properly handled. The IDD, however, will go further, imposing broader obligations on insurers, including in relation to the remuneration policies for the sales staff of exempt distributors.
EIOPA's report is based on data from 50 insurance undertakings based in 21 jurisdictions. It has been published against a background of recent, country specific thematic work on MPI in France, the UK and Belgium, which found similar failings in national MPI markets. In the UK, in particular, the FCA has recently revisited its MPI thematic review from 2013 with a follow-up review, which it reported on in December 2015. As a result of the follow-up review, a number of firms have already made further improvements to their claims and complaints handling, though the FCA will continue to address remaining issues with individual firms.
Some of the issues identified by EIOPA with the MPI market in Europe will be familiar to anyone who read the FCA's June 2013 Thematic Review into MPI. They include:
- consumers not being properly informed about what is and what is not covered by their MPI product;
- unreasonably long and burdensome claims procedures; and
- consumers being unaware that they were purchasing MPI as an add-on when purchasing a mobile phone, opening a bank account or buying a credit card.
EIOPA makes a number of recommendations to address the issues identified in European MPI markets, which include requiring adequate training for MPI distributors and salespersons, and notes that the agreed text of the IDD will wholly or partly implement some of its recommendations. Under the IDD, insurers will be required to ensure compliance by their exempt MPI distributors (defined as "Ancillary Insurance Intermediaries") with certain requirements of the IDD, including:
- The requirement for insurance distributors:
- to act honestly, fairly and professionally in accordance with the best interests of their customers;
- not to remunerate or assess the performance of their employees in a way that conflicts with their duty to act in accordance with the best interests of their customers; and
- if MPI is sold as an add-on to or otherwise bundled with another product, to inform the consumer if it is possible to buy the different components separately and if so the price for doing so;
- the provision of a pre-contract Product Information Document (PID) to consumers;
- the carrying out of a needs and demands analysis prior to the conclusion of the MPI contract; and
- the establishment of complaints procedures and provision of point of sale information to consumers about them.
It is clear that under the IDD insurers will have to take on more responsibility for the conduct of exempt sales of MPI and other ancillary insurance products sold on an exempt basis pursuant to the connected contracts exclusion. The IDD is not due to come into force for at least another 2 years, which should give insurers sufficient time to ensure compliance with the IDD.