Out-Law / Your Daily Need-To-Know

Sellers of insurance-based investment products need conflict of interest policy, says EU regulator

06 Feb 2015, 4:57 pm

Insurers and insurance intermediaries should create a 'conflicts of interest' policy and apply it to situations where a conflict might harm consumers of insurance-based investment products, a European regulator has said.

The European Insurance and Occupational Pensions Authority (EIOPA) said that there are some situations where there will always be a conflict between companies' interests and those of consumers, including where an insurer or distributor will make a gain or avoid a loss at a consumer's expense or where a distributor manages or develops insurance-based investment products.

EIOPA's view forms part of advice provided to the European Commission on conflicts of interest that arise in the selling of insurance-based investment products (30-page / 256KB PDF).

It said that insurers and insurance intermediaries involved in selling insurance-based investment products should "assess all cases where they have an interest related to distribution which is distinct from the customer's interest and which has the potential to influence the outcome of the services to the detriment of the customer".

Third party payments, or inducements, and internal payments, or remuneration, may also cause conflicts of interest and must be considered, and an 'effective' conflict of interest policy should be written by insurers to cover all potential issues, EIOPA said.

"From a consumer protection perspective, EIOPA considers it of utmost importance that specific organisational measures and procedures are introduced in order to address conflicts of interest resulting from the receipt of third-party payments or monetary benefits, to ensure strict compliance with the principle of acting in the best interests of the consumer," it said.

Any measures put in place must: ensure any inducements are for the benefit of a customer, and do not lead to detriment for the customer; ensure that inducements do not impair the insurer or intermediary's duty to act for the best interests of the customer; and ensure that any inducements are clearly disclosed to the customer.

Gabriel Bernardino, EIOPA’s chair, said: "We have clear lessons to learn from mis-selling cases that caused consumer detriment and unidentified, unmanaged or unmitigated conflicts of interest were at the core of those cases. Consumers should always be confident that they will be offered a fair deal. We believe that it is essential to strengthen rules so that consumers' interests are not sacrificed in favour of those of insurers or intermediaries. Progress on this is vital for rebuilding trust, which will be good for insurers, insurance intermediaries and consumers alike."