EIOPA sets out a framework for delivering better value for money in a consumer-centric way
30 November 2021
EIOPA considers that reliably putting consumer outcomes at the heart of product design, distribution and monitoring processes is critical for tackling value for money issues.
The European Insurance and Occupational Pensions Authority (EIOPA)
issued today a supervisory statement, which sets out the common
principles needed so unit-linked products can offer value for money.
EIOPA considers that reliably putting consumer outcomes at the heart
of product design, distribution and monitoring processes is critical for
tackling value for money issues. Hence it has issued a supervisory
statement to outline how supervisory authorities will monitor
manufacturers’ and distributors’ product oversight and governance
processes.
With this statement EIOPA highlights that while value for money is
embedded already within product oversight and governance requirements,
more convergence is needed in practical supervisory implementation. So,
while the statement introduces no additional regulatory requirements, it
clarifies the following main principles that EIOPA expects to see in
their supervisory approach:
- Pricing: While supervisory activities should not
interfere with pricing, as evidence of the assessment of value for money
risks in their products, manufacturers should be able to present a
structured pricing process. This should include evidence that costs and
charges are properly identified, quantified and are not undue, taking
into account the target market’s needs objectives and characteristics
and the costs borne by providers.
- Complexity: Considering that product oversight and
governance processes should be proportional to the level of complexity
of the products and that the granularity of the target market should
clearly reflect the product’s complexity, manufacturers should assess
and determine the level of complexity of their products. In particular,
the more complex the products are, the higher will be the degree of
financial literacy that consumers and insurance distributors need. The
complexity also needs to be considered in an appropriate distribution
strategy.
- Testing: Manufacturers should test their
unit-linked products appropriately, also by using scenario analyses.
This should be done before bringing to the market new products or
products that have been significantly adapted, or when the needs,
objectives and characteristics of the defined target market or the risks
posed to it have significantly changed.
- Regular review: Manufacturers should continuously
monitor and regularly review unit-linked products they have placed on
the market, to identify events that could materially affect the main
features, the risk coverage or the guarantees of those products.
- Supervision: National competent authorities are
expected to monitor their market to ascertain that insurance product
manufacturers ensure that customers receive fair value unit-linked
products.
Overall EIOPA expects a risk-based approach – where the products
which pose the greatest risk of consumer detriment due to poor value for
money are given supervisory priority. Poor value for money can
undermine the development of the single market, reduces the impact of
capital markets union, and lowers household resilience to financial
shocks over the longer term.
EIOPA and the national competent authorities will monitor the market
to assess how well insurance product manufacturers ensure that customers
receive fair value unit-linked products. Towards this goal, EIOPA is
carrying out further work to develop a methodology to ensure a
consistent assessment of value for money across the European Union and
it will continue reporting on this aspect.
EIOPA
© EIOPA
