In summary, the Guidelines are intended to address the fact that consumers across Europe have been presented with products which did not meet their expectations, primarily due to inherent flaws in both the design of the product itself and the manner in which it was sold. As a headline point, the Guidelines require firms to take a much more robust and thorough approach to product testing which will include undertaking stress-tests which take into account changes in the financial strength of the firm as well as reviews of how policy terms and conditions may impact the target audience. In addition, the Guidelines introduce some key elements for the collaboration between manufacturers and distributors emphasising the importance of strengthening the exchange of product related information.
For insurers and intermediaries who manufacture products for sale to the market, EIOPA requires clear product governance and oversight arrangements to be established, with defined objectives, which address the particular nature, scale and complexity of relevant products. These oversight and governance policies should be reviewed regularly and include a frequent analysis of target market, the skills of the employees who design the products, and detailed product performance monitoring. EIOPA suggests that monitoring should include a review of the expected claims ratio as well as the claims payment policy, or causes of complaints in determining whether to revise the offering. This analysis would allow firms to assess whether certain products are good value to customers and indicate whether the customers are getting a fair deal. Firms would also have to take into account whether products overlap with coverage already provided to customers. Terms and conditions should be reviewed to see if they meet the needs of the target audience and reviewed to ensure that that audience understands the policy terms and limitations.
The Guidelines for insurers and intermediaries who manufacture products for sale to customers have now been established as follows:
- Establishment of product governance and oversight arrangements.
- Objectives of the product governance and oversight arrangements.
- Role of the manufacturer’s administrative, management or supervisory body.
- Review of product governance and oversight arrangements.
- Target market.
- Skills, knowledge and expertise of personnel involved in designing the products.
- Product testing.
- Product monitoring.
- Remedial action.
- Distribution channels.
- Outsourcing of the product design.
- Documentation of product governance and oversight arrangements.
For insurance distributors, the emphasis is ensuring that there are comprehensive systems and controls around the distribution of the products including ensuring that there are clearly defined processes around the flow of product information between the manufacturer of the product and the distributor.
The draft Guidelines for insurance distributors who distribute products to customers are as follows:
- Establishment of product distribution arrangements.
- Objectives of the product distribution arrangements.
- Role of management.
- Obtaining all necessary information on the target market from the manufacturer.
- Obtaining all other necessary information on the product from the manufacturer.
- Distribution strategy.
- Regular review of product distribution arrangements.
- Provision of sale information to the manufacturer.
Responses are due on the draft Guidelines for insurance distributors by 29 January 2016.
While EIOPA plans to revisit the preparatory Guidelines once the deadline for the transposition of the IDD has passed to assess whether any revision is necessary, it is likely that the content will remain broadly the same. As such, insurers and insurance distributors will need to place product governance and oversight at the forefront of strategy going forward.