The European Insurance and Occupational Pensions Authority (EIOPA) recently published technical advice to the European Commission covering product oversight and governance (POG) arrangement policy proposals for manufacturers of insurance products. The advice included requirements that insurance products are appropriately tested before being brought to market; are aligned with the demands and needs of the target market, and are distributed via appropriate channels. The POG arrangements need to have as their objective the prevention or mitigation of customer detriment; they need to be proportionate to the nature, scale and complexity of the manufacturers' business; they need to be documented, regularly reviewed, made available to staff and be endorsed by management.
EIOPA has clarified in its proposals that an insurance intermediary shall be considered a manufacturer where it has a decision-making role in designing and developing the insurance product. The insurance undertaking issuing the product will however remain fully responsible to the customer for the coverage provided. Both insurance undertaking and intermediary will remain responsible for the POG arrangements.
Different policy proposals from EIOPA apply to those who do not manufacture but do advise on insurance products. For example, these non-manufacturers need to ensure that they obtain all of the relevant, precise and up-to-date information about the product from the manufacturer and should promptly inform the manufacturer about any problems with the distribution strategy.
In a separate but related development for manufacturers of insurance products, EIOPA has provided further information, and a draft template, for the new Insurance Product Information Document (IPID) in draft Implementing Technical Standards published at the beginning of February. The IPID is a pre-contractual document for non-life insurance products to be drawn up by the manufacturers of those products and provided to customers in advance of the conclusion of a sale. This is irrespective of the distribution channel used i.e. direct, intermediary, telephone, online, comparison websites etc. The IPID does not though replace the policy terms and conditions. Any personalisation will be done via the terms and conditions and not via the IPID.
Requirements for the IPID are set out in the Insurance Distribution Directive (IDD) including that it is:
- a short and stand-alone document;
- clear and easy to read, using characters of a readable size;
- written in the official language where the insurance product is offered;
- accurate and not misleading;
- provides information about the type of insurance;
- provides a summary of the insurance cover;
- includes the means of payment of premiums and the duration of payments;
- includes the main exclusions;
- includes customer obligations;
- includes the contract term; and
- includes the means of terminating the contract.
Application in the UK
Both the POG arrangements and IPID aspects of the IDD have to be consulted on by regulator the FCA as part of the UK implementation process. A second consultation dealing with these aspects is expected later in the year. Following increased focus and consultation in recent years by both EU and UK regulators on product development and design, the policy proposals on POG arrangements will not be a surprise to UK firms. Much of EIOPA's advice in this regard has been based on preparatory guidelines on POG arrangements previously published in April 2016 with which firms should be familiar.
Although it has not yet formally consulted on IPID requirements, the FCA has sought views in its first consultation published recently on whether the IPID should be provided to commercial as well as retail customers. This is because, in developing the IPID, EIOPA has focused on retail customers only.
The context for the EIOPA policy proposals on POG arrangements for insurance products is article 25 of the IDD which says that insurance undertakings and intermediaries which manufacture any insurance product for sale to customers "shall maintain, operate and review a process for the approval of each insurance product, or significant adaptations of an existing insurance product, before it is marketed or distributed to customers". The requirements do not apply to the insurance of large risks. The IDD empowers the European Commission to adopt delegated acts to further specify the principles set out in Article 25 and the Commission sought technical advice from EIOPA as its first step in the process.
The context for the provisions on the IPID is article 20 of the IDD which says that:
- in article 20(4) - "prior to the conclusion of a contract, whether or not advice is given and irrespective of whether the insurance product is part of a package… the insurance distributor shall provide the customer with the relevant information about the insurance product in a comprehensible form to allow the customer to make an informed decision, while taking into account the complexity of the insurance product and the type of customer."
- in article 20(5) – the information "shall be provided by way of a standardised insurance product information document on paper or on another durable medium".
The IDD empowers EIOPA to develop the draft implementing technical standards regarding a standardised presentation format of the IPID specifying the details of the presentation of the information.