The European Insurance and Occupational Pensions Authority ("EIOPA") published a peer review on Product Oversight and Governance ("POG") requirements on 20 July 2023.
The review covered a period from the application of the Insurance Distribution Directive ("IDD") on 1 October 2018 until 31 March 2022.
The review focused on insurance-based investment products ("IBIPs") for several reasons. First, IBIPs represent a significant portion of the insurance sector in the EU (23% at the end of 2021). Secondly, IBIPs are complex and the impact of mis-selling can be very high, as they are often a key component of household financial planning.
EIOPA reiterated the importance of POG requirements for insurers, as they play a key role in consumer protection by ensuring that customers' objectives, interests and characteristics are taken into account through the product life-cycle, with the aim of mitigating the risk that products do not meet consumers' needs.
All 30 national competent authorities ("NCAs") in the EEA participated in the review, which revealed significant differences between NCAs in the level of POG supervision. Several NCAs reported difficulties in supervision POG requirements due to the principle-based nature of the regulations, making it challenging to formulate concrete, market-specific supervisory expectations for manufacturers of insurance products. The absence of practical expectations limits the effectiveness of POG supervision, as without such expectations, supervisors could not go beyond merely assessing whether POG arrangements were formally in place.
The Central Bank of Ireland ("CBI") was amongst the six best NCAs, which were seen by EIOPA as "broadly meeting expectations", with only one recommended action each. EIOPA noted that the CBI performed well in the following areas:
- Organisation and resources – by prioritising POG supervision within conduct of business supervision and allocating experienced resources;
- Risk-based supervision – by using quantitative indicators and qualitative analyses, leading to identification of the main risks for consumers;
- Methodologies and tools – by preparing detailed internal procedures and manuals to assist supervisors in their reviews, in terms of expectations, best practices, examples and insights; and
- Supervisory activities – by using a range of supervisory activities, such as deep-dives and follow-up actions, as well as market-wide and undertaking-specific assessments.
The one recommended action for the CBI was that it should communicate to the market a comprehensive set of supervisory expectations covering all elements of POG requirements applying to IBIPs. This communication should be in a formal manner or via supervisory dialogues to clearly establish how POG requirements should be applied in day-to-day business.
The review puts the current focus of the CBI on POG requirements into context, particularly the recent thematic inspection by the CBI of POG compliance for non-life insurers, the results of which were published in the CBI's insurance newsletter for June 2023, available here. From the peer review, it seems we can expect further communications to the market from the CBI on POG requirements soon.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.