Regulator warns of online pension and insurance sales risks for consumers

The European Insurance and Occupational Pensions Authority (EIOPA) said in an opinion (4-page, 211KB PDF) on consumer protection and insurance and pensions sales that users do not do adequate research before buying products online.

It said that national regulators should ensure that companies selling products online comply with a 'duty of advice' to protect consumers.

With consumers increasingly prepared to buy complex financial products online, but generally unwilling to pay for investment advice, there is a need to consider policies to protect them, EIOPA said.

"It is worth noting that consumers can find an abundance of information online. Digital research can help to empower consumers making an informed choice," EIOPA said. "The surfeit of information online, and different ways this can be filtered or presented, can also present challenges for consumers … in general most people do not conduct sufficient searches for information, even in a context of information abundance, and instead rely on rules of thumb that can be subject to biases and distortions."

Some consumers who researched premiums online have accidentally entered into unsolicited contracts, due to a lack of understanding of the online buying process, EIOPA said.

EIOPA has recommended that national competent authorities (NCAs) in each country ensure that online sellers of financial products comply with any applicable 'duty of advice' in that country, and that consumers are given "appropriate information on the selling process of the online distributor with a view to avoiding unsolicited, or mistakenly concluded, contracts".

Where relevant, NCAs should also take a more proactive approach in monitoring how products are being promoted, and identifying any issues with new distribution channels being used within their country.

NCAs have been asked to provide feedback to the opinion within six months, along with details of any investigations or actions taken.

Insurance law expert Bruno Geiringer of Pinsent Masons, the law firm behind Out-Law.com, said it was not surprising to see the EIOPA “throw in its tuppence worth” since technological developments are driving an increasingly digital insurance market where communicating with customers and potential customers is becoming easier.

"Although there are benefits deriving from online distribution, EIOPA is signalling to the European regulators that they need to manage the risks which could lead to customer detriment and it is calling for greater awareness of the impact of sales on the internet for consumer protection,” he said.

Geiringer said that it would “come as no surprise” to businesses in the UK financial services industry that the EIOPA would like to see increased monitoring of the market in relation to the use of the internet as a distribution channel. This is because the UK’s Financial Conduct Authority “has been quick to undertake thematic reviews of sales online in recent years and developed a number of guidance notes for which, although not everyone agrees with all the guidance, the FCA should be praised, he said.

“We have seen a tremendous growth in the UK of online direct-to-consumer websites and a customer willingness in the UK to transact online in relation to savings, pensions and investments,” Geiringer said. “It would not be particularly difficult for the FCA to be able to provide EIOPA with a very good dossier about the investigations and actions undertaken in the UK and to give its general feedback on the position in the UK. For this reason, EIOPA’s recommendations therefore do look a little dated in terms of the UK regulatory scene. One wonders what more EIOPA can add but we will have to wait and see what feedback they receive and then what EIOPA does next. Noteworthy is that EIOPA do not actually say what their next steps are going to be after receiving the feedback."