EIOPA provides advice to the European Commission on conflicts of interest in the context of the distribution of insurance-based investment products
- Recommendations relate to identification, prevention, management and disclosure;
- Distributors should have an effective conflicts of interest policy set out in writing;
- Measures to ensure the proper management of conflicts of interest resulting from third party payments.
Frankfurt, 4 February 2015 – The European Insurance and Occupational Pensions Authority (EIOPA) has provided advice to the European Commission on the identification, prevention, management and disclosure of conflicts of interest which may arise in the course of the distribution of insurance-based investment products. The advice will assist the Commission on possible future implementation of legislation.
Identification of conflicts of interest
EIOPA recommends requiring insurance intermediaries and insurers to 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.
For certain cases such conflicts can always be presumed to exist, for instance, where the distributor is likely to make a financial gain, or avoid a financial loss, at the expense of the customer, or where the distributor is involved in the management or development of insurance-based investment products.
Conflicts of interest policy
EIOPA also recommends requiring insurance intermediaries and insurers to establish and set out in writing an effective conflicts of interest policy. At the same time, EIOPA acknowledges the importance of proportionality, especially with regard to the impact new organisational requirements may have for small and midsize intermediaries. However, all insurance intermediaries and insurers are bound to adopt the appropriate procedures and measures necessary for ensuring that their distribution activities are carried out in the best interest of the customers and are not biased by conflicting interests.
Inducements and remuneration
EIOPA also notes that conflicts of interest may arise from third party payments (inducements) and from internal payments (remuneration). Therefore, EIOPA is convinced that this issue should be addressed as well. As inducements are discussed in the review of the Insurance Mediation Directive (IMD), EIOPA only presents general observations on this topic.
Gabriel Bernardino, EIOPA’s Chair: „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.”
Note for Editors:
The European Insurance and Occupational Pensions Authority (EIOPA) was established on 1 January 2011 as a result of the reforms to the structure of supervision of the financial sector in the European Union.
EIOPA is part of the European System of Financial Supervision consisting of three European Supervisory Authorities, the National Supervisory Authorities and the European Systemic Risk Board. It is an independent advisory body to the European Commission, the European Parliament and the Council of the European Union.
EIOPA’s core responsibilities are to support the stability of the financial system, transparency of markets and financial products as well as the protection of insurance policyholders, pension scheme members and beneficiaries.
Examples of insurance-based investment products include unit-linked life insurance contracts and with-profits life insurance contracts. Unit-linked contracts are typically used for making investments, with the customer often making a choice over where their money gets invested. After a period of time, the customer will be able to get their money back, with the amount depending on how the investment did. With-profits contracts can also be used to save, typically with a guaranteed return and additional bonuses depending on how well the insurer themselves did.