Under the Insurance Distribution Directive (IDD), the European Commission (Commission) can adopt certain delegated acts, to supplement or amend certain non-essential elements of the IDD. The European Insurance and Occupational Pensions Authority (EIOPA) received a request from the Commission for EIOPA to provide the Commission with technical advice on product oversight and governance, conflicts of interest, inducements and, suitability or appropriateness of insurance-based investment products (IBIP), each of which need to be specified in delegated acts.
EIOPA’s advice was published on 1 February 2017 (Advice) and a Draft Implementing Technical Standards (ITS) on Insurance Product Information Document (IPID) was published on 7 February 2017, which EIOPA must submit to the Commission by 23 February 2017.
Product oversight and governance
EIOPA currently has no plans to introduce price controls, although it considers that the interests of customers should be taken into consideration throughout the life cycle of a given product. EIOPA provides further clarification of the criteria used to determine when an insurance intermediary may be considered to be manufacturing insurance products and details relating to the information exchange permitted between manufacturers and distributors of insurance products.
Conflicts of interest
EIOPA takes a tough stance on the issue of conflicts of interest. It sets out a list of circumstance where conflicts may arise, including circumstances where an insurance intermediary is involved in the management or development of a product.
Despite the extensive feedback received on the non-exhaustive list of criteria for the assessment of detrimental impact, following a public consultation in July and October 2016, no fundamental amendments have been made. EIOPA considers the term “inducement” to include payments to insurance intermediaries, who are contractually obliged to conduct distribution activities exclusively with one or more insurance undertakings, such as tied agents. There are no separate rules for tied intermediaries under IDD.
EIOPA is proposing a list of criteria for assessing whether an inducement increases the risk of detrimental impact but has stressed that the purpose of this is not to introduce a ban on inducements.
Insurance-Based Investment Products (IBIPs)
As detailed in last week’s Bulletin, there is an obligation on insurers and intermediaries to determine the extent of the information to be collected from customers in light of a customer’s knowledge, experience, financial situation and investment objectives. Insurers and intermediaries should inform customers “clearly and simply”, that the reason for assessing the customer’s suitability is to enable the insurer or intermediary to act in accordance with the customer’s best interest. If the information required is not obtained, then the insurer and/or intermediary will not be permitted to recommend IBIPs to the customer.
Implementing Technical Standards (ITS)
The purpose of the ITS is to provide a standardised format and template for the IPID. The IPID is a significant project within the overall work of EIOPA on IDD. The object of the IPID is to ensure that customers are given sufficient information about non-life insurance products in order that they can readily compare different products and make informed purchasing decisions.