As part of the product oversight and governance arrangements, manufacturers should undertake appropriate testing of insurance products, including, where relevant and in particular for insurance-based investment products, scenario analyses, to ensure that the product meets over its whole lifetime, the identified needs, objectives and characteristics of the target market. The product should be tested on all relevant dimensions. This should, in particular, include assessments of the working of the product, the price and coveragre of the product, the performance of the product, the risk/reward profile of the product and the product information given to customers. Depending on the product in question, testing should include considerations about liquidity and access to funds (e.g. whether underlying investments in property are easily accessible). 

Product testing can, for example, include testing of the wording and the comprehensibility of the policy and the terms and conditions,  the claims-handling process with regard to the respective insurance product, the costs and the pricing of the product. (Article 5 (3) Delegated Regulation 2017/2358: When assessing whether an insurance product is compatible with a target market, manufacturers shall take into account the level of information available to the customers belonging to that target market and their financial literacy). The requirement to assess the product performance should, however, not be understood as an interference with the manufacturer’s freedom to set premiums or as price control in any form. Based on experience in some Member States, EIOPA can provide the examples below. N.B. These examples are purely illustrative and are not intended as full and exhaustive descriptions of required product testing. 

a. Example of product testing in case of customer customization of the insurance product. In some Member States, insurance undertakings offer customizable insurance products to customers. For example, travel insurance products in which customers can switch coverage on and off using an app on a device with Internet access.  The customer turns on the coverage when they travel and only pays a premium for this period. Depending on the destination, the customer can choose between types of cover or geographical coverage (for example: European or worldwide). Product testing should include relevant scenarios, such as the scenario that the customer forgets to cancel the insurance cover where there is a risk of duplicative insurance cover based on their personal situation. The manufacturer uses the findings of scenario analyses to adapt the insurance product, if necessary.

b. Example of product testing of insurance-based investment products. EIOPA considers it important that product testing of insurance-based investment products should always include scenario analysis. Events like declining stock prices should be identified and the effect on the outcomes of the product should be analyzed. In addition, the costs structure should be analyzed in light of such events and the connection with the needs and objectives of the target market. In general, costs always should be reasonable and transparent.

c. Example of product testing in case of car insurance premium based on driving behaviour. A motor insurer has the ability to track drivers and to offer a discount on the premium when driving safely. This feature should be tested on a pilot group in order to determine whether the feature and outcome matches the expectation of the client before launching the feature.

d. Example of product testing of home building insurance. A particular home building insurance product offers coverage for buildings that are occupied by the owner. Rented buildings are not covered. Product testing should include the assessment of the likelihood that the building will be rented out during the lifetime of the insurance product.

e. Example of product testing by means of consumer testing. An example of a good practice for testing the comprehensibility of insurance products in some Member States is that the manufacturer will invite a panel from the target group to provide input on the language of the terms and conditions of the insurance product. The manufacturer documents the comments of the target group and uses the input from the panel to improve the language of the terms and conditions. Another example of good practice is that the manufacturer analyses contacts and complaints for similar products. The manufacturers uses the findings of the analyses to improve the insurance product.

f. Example of product testing by means of analysis of consumer complaints. Another example of good practice is that the manufacturer analyses contacts and complaints for similar products. The manufacturers uses the findings of the analyses to improve the insurance product.