A consultation paper[1] has been published by the European Insurance and Occupational Pensions Authority (EIOPA) on proposed guidelines under the Insurance Distribution Directive (the IDD) for companies selling Insurance-Based Investment Products (IBIP). The guidelines will help to clarify when it is possible for companies to sell an IBIP without considering whether it is suitable or appropriate for the customer. EIOPA recognises that some customers may be interested in “execution-only” services and will not want to pay for additional services that they consider unnecessary when they have sufficient knowledge of financial markets.


As a general rule, the Insurance Distribution Directive (IDD) requires companies selling IBIPs to assess the suitability or appropriateness of an IBIP for their customer:

  • The suitability test: If advice is given with the sale, the IDD requires the salesperson to gather information on the customer for example their knowledge and experience in that investment, their financial situation and investment objectives and provide a statement stating how the advice meets the customer’s preferences, objectives and other characteristics (Article 30(1)).
  • The appropriateness test: If advice is not given with the sale (i.e. the transaction is “execution only”), the salesperson is still required by the IDD to gather the customer’s knowledge and experience in the specific investment to consider if it is appropriate, and warn the customer if it is not (Article 30(2)).

However, if certain conditions are met, EU member states are permitted to derogate from the above obligations and to permit companies selling IBIPs, but not providing advice, not to apply the appropriateness test under Article 30(3). One of those conditions, in Article 30(3)(a), requires that the IBIP:

  • Not incorporate a structure which makes it difficult for the customer to understand the risks (if already deemed “non-complex” under Markets in Financial Instruments Directive II) (Art 30(a)(i)) or
  • Be considered “non-complex” (Art 30(a)(ii)).

The guidelines

EIOPA’s draft guidelines clarify how to interpret the above conditions. Where an IBIP contains any of the features listed below, EIOPA considers that the IBIP should be considered to incorporate a structure which makes it difficult for the customer to understand the risks involved and, therefore, that the “appropriateness test” should be applied:

  • A clause, condition or trigger that allows the insurance undertaking to materially alter the nature, risk or pay out profile of the investment.
  • No option to surrender or otherwise realise the investment at a value available to the customer.
  • Explicit or implicit charges that may technically be options of surrender but may cause unreasonable detriment to the customer.
  • A complex mechanism that determines the maturity or surrender value of a pay out upon death.
  • Any of the following if they are difficult to understand: product charges, surrender fees and contractual provisions regarding modifying the person receiving the benefits.

What does this mean for those selling IBIPs?

EIOPA’s guidelines may still change and even when they are final, member states may impose more stringent requirements. Until EIOPA finalises the guidelines, which it has indicated it will do after the European Commission adopts certain delegated acts later this year, and until member states transpose the IDD, the guidelines provide a useful explanation of when, in practice, companies may need to apply the appropriateness test.