EIOPA Publishes Peer Review On Product Oversight And Governance – Insurance Laws and Products

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:

1. Organisation and resources – by prioritising POG
   supervision within conduct of business supervision and allocating
   experienced resources;




2. Risk-based supervision – by using quantitative
   indicators and qualitative analyses, leading to identification of
   the main risks for consumers;




3. 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




4. 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.