Ensuring insurance consumers are adequately protected as retail investors

Thank you, Madame Chair, for giving me the floor and the opportunity to add the perspective from the insurance and pensions sectors, in relation to the Commission’s proposal on the Retail Investment Strategy, which EIOPA strongly supports.

There are three key points that I would like to highlight:

1. First, the importance of taking the needs and characteristics of insurance consumers into account;
2. Second, ensuring that retail investors who buy insurance-based investment products are adequately protected;
3. Third, building trust in financial advice and in financial markets.

First, why insurance and pensions consumers are important:

Insurance-based investment products (or IBIPs), such as unit-linked life insurance and traditional life insurance represent over 70% of retail investments. These are often the first, sometimes the sole, retail investment products which most consumers buy.

We know from our supervisory experience that insurance consumers

• often have small sums of money to invest;
• are looking for a combination of investment and insurance protection – in fact, in many markets, IBIPs still offer guaranteed returns which limit the exposure to market fluctuations;
• are not highly sophisticated investors: they are after all small investors and have neither power nor the funds to pick or buy multiple products to adequately manage their portfolio and risks.
• This means that they also tend to trust and rely on their local insurance intermediary or bank manager.
•  And still in today’s ‘digital first’ world, they tend to prefer human advice for the more complex financial products.

Secondly, how can we ensure the retail investors who buy insurance-based investment products are adequately protected?

• First off, a statement of fact: there are issues in the market. The issues can be at product level (high costs) or at distribution level (quality advice, conflicts of interest). Action is needed is ensure customers are treated fairly, including when purchasing IBIPs.
• IBIPs are mass-marketed products. It is essential that they are designed from the start with the interests of consumers in mind so that they offer real value for money.
• This means looking not only at costs or any insurance protection needs, but also at returns, whilst not interfering with market freedom.
• We are therefore pleased that the Commission not only followed EIOPA’s advice on how to promote cost-efficient and simple products but also incorporated EIOPA’s work on value for money into the proposal for the Retail Investment Strategy.[1]  [2]
• EIOPA also welcomes the proposal for benchmarks as reference points, around which supervisors can intervene. This will require good data and so proportional and adequate reporting will be indispensable to develop good benchmarks. 

Thirdly, how to build trust in financial advice and in financial markets?

There has been a lot of debate around a possible ban on commissions. EIOPA provided advice to the Commission outlying the pros and cons. We have not changed our position:

• In our view, there are no regulatory silver bullets to effectively resolve conflicts of interest[3]. A ban will solve some issues, but not all, and bans may create others. 
• Our data shows that, even in those countries where a ban is in place, over 50% of consumers are not confident of getting unbiased advice[4]. In countries where there is no ban, this percentage is 64% on average – consumers therefore do not believe that the ban is the perfect solution to remove bias from the advice process.
• This is why we welcome the focus of the proposal on placing more effort to make sure that – from the outset – the products that enter the market are good products, i.e. they meet the needs of the target market and they offer value for money, as well strengthening supervisory actions to deal with outliers.
• Unbiased advice is only one element of a well-functioning retail investment market. But advice counts for nothing if the products that are manufactured and sold are bad products and if supervisors do not have sufficient tools and enforcement powers to act comprehensively and conclusively when issues that cause detriment to consumers arise, especially in cross-border cases.

In conclusion, it is critical that adequate consideration is given to the needs, objectives and characteristics of consumers who buy IBIPs and the important role that EIOPA and national insurance supervisors will play in ensuring effective outcomes for consumers. There are still issues that need addressing in the IBIPs market and the answer lies in both improving the regulatory framework and in ensuring robust supervision.

[1] Supervisory statement on assessment of value for money of unit-linked insurance products under product oversight and governance (europa.eu)

[2] Methodology to assess value for money in the unit-linked market (europa.eu)

[3] Opinion on monetary incentives and remuneration between providers of asset management services and insurance undertakings.pdf (europa.eu)

[4] Consumer Trends Report 2022 (europa.eu)