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European Insurance and Occupational Pensions Authority

1671

Q&A

Question ID: 1671

Regulation Reference: (EU) No 2016/97 - Insurance Distribution Directive

Topic: POG arrangements for distributors (Art. 25 para. 1 subpara. 6 IDD)

Article: 25

Status: Final

Date of submission: 20 Aug 2021

Question

POG requirements under the IDD (in particular Article 25 on Product Oversight and Governance Requirements) shall not apply to tailor-made policies stipulated as a result of the participation of the insurance undertaking in a public procurement procedure, because of the lack of the necessary conditions for the insurance undertaking to maintain, operate and review a process for the approval of the insurance product at issue - or significant adaptations of it - before it is marketed or distributed to customers.

In those specific cases, it is indeed the procuring entity – which is “the” only customer for that kind of insurance product – (i) that determines the terms and conditions of the contract (which are not replicable for other contracting parties) as well as of the related distribution, (ii) that assesses whether the contract meets its demands and needs, and (iii) that regularly reviews it thus determining whether it remains aligned with the demands and needs during the its entire duration. Please confirm this interpretation.

Background of the question

In our opinion, IDD provisions on POG arrangements and in particular Article 25 of the IDD shall not apply to tailor-made policies stipulated as a result of the participation in a public procurement procedure for the following reasons.

Firstly, when referring to this kind of insurance policies, it seems not possible to proceed with the identification of a target market or a group of customers, since there is only a single customer (which is the procuring entity) that is able to conclude an insurance contract under the terms and (both general and special) conditions that are not replicable and applicable to other customers. In addition, it is important to emphasize that those terms and conditions of the insurance contract are not determined by the insurance undertaking, and not even in collaboration with the latter (for example in a situation of co-manufacturing), but autonomously by the procuring entity (Contraente).

In light with the applicable Italian law (Article 68 of the Legislative Decree of April 8, 2016, no. 50, the Italian Public Procurement Code), it is the procuring entity that determines the conditions of the tender that cannot be modified or that can be modified only through options, also pre-determined by the procuring entity. The participating (insurance) company (i.e., the tenderer) can only submit a tender that adheres to those terms and conditions, on pain of exclusion from the tendering procedure.

Having said that, when referring to public procurement cases, it appears clear that it is the procuring entity that determines the terms and conditions of the contract, which are not replicable for other contracting parties and not even for the same procuring entity. It is also the same procuring entity that assesses whether the contract meets its demands and needs and remains aligned with them during the entire duration of the contract, thus undermining the need to carry out product testing or monitoring exercises.

Please confirm whether the interpretation above explained is correct.

EIOPA answer

From a customer perspective, it does not make any difference whether the insurance product is sold to one customer or a group of customers. In contrast hereto, it could be argued that the POG arrangements are disproportionate if applied for tailor made products, in particular with regard to the identification of the target market and the product testing, taking into account that the insurance product is designed for the specific demands and needs of an individual customer.

The POG requirements apply to the manufacturing of insurance products that are offered for sale to customers (i.e. more than one customer). In case of manufacturing insurance tailor-made policies stipulated as a result of the participation of the insurance undertaking in a public procurement procedure, a manufacturer cannot apply POG provisions, if this tailor made insurance product is personalised, adapted or designed for individual customer. Article 3 of the Delegated Regulation (EU) 2017/2358 prescribes that personalisation of and adaptation of existing insurance products in the context of insurance distribution activities for individual customers, as well as the design of tailor made contract at the request of a single customer shall not be considered manufacturing. 

On the other hand, personalisation of and adaptation of existing insurance products for more than one customer or design of a new tailor-made product for more than one customer cannot be exempt from the scope of product oversight and governance rules. It is worth noting, that in case of tailor made group insurance products, as explained in recital 49 of the IDD, ‘customer’ should mean the representative of a group of members who concludes an insurance contract on behalf of the group of members where the individual member cannot take an individual decision to join, such as a mandatory occupational pension arrangement. The representative of the group should, promptly after enrolment of the member in the group insurance, provide, where relevant, the insurance product information document and the distributor’s conduct of business information.