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25 April 20224 minute read

EIOPA launches public consultation on draft Guidelines on integrating customer's sustainability preferences in the suitability assessment under the IDD

On 13 April 2022 European Insurance and Occupational Pensions Authority (EIOPA) launched a public consultation on draft Guidelines on the integration of the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive (IDD). The Guidelines stem from Commission Delegated Regulation (EU) 2021/1257 regarding the integration of sustainability factors, risks and preferences into:

  • the product oversight governance requirements for insurance undertakings and distributors; and
  • the rules on conduct of business and investment advice for insurance-based investment products (IBIPs).

Stakeholders are invited to provide their feedback by 13 May 2022. EIOPA expects to publish the final Guidelines in July 2022, in time for the application date of 2 August 2022, of Commission Delegated Regulation (EU) 2021/1257.

The amendments to the IDD made by Commission Delegated Regulation 2021/1257 will introduce important changes in the way the sustainability preferences of the individual customer are taken into account in the suitability assessment by the insurance undertakings and insurance intermediaries advising on insurance-based investment products.

The Guidelines aim to clarify the application of the customer’s sustainability preferences under the suitability assessment and reduce the risk of diverging interpretations that might lead to discrepancies in the application and supervision of the relevant regulation and requirements across Member States.

Overview of the draft Guidelines

Guideline 1 (Information to customers about the purpose and the scope of the suitability assessment with regard to suitability) provides that insurance undertakings and insurance intermediaries should explain clearly to customers the concept of sustainability preferences to help them understand this concept and their choice as to whether and to what extent a particular insurance-based investment product should be integrated into their investment.

Guideline 2 (Collection of information on sustainability preferences from the customer) clarifies what information should be collected from customers regarding their sustainability preferences relating to the IBIP’s minimum proportion invested in environmentally sustainable investments as defined under the Taxonomy Regulation, the minimum proportion invested in sustainable investment as defined under the Sustainable Finance Disclosures Regulation (SFDR) or the consideration of principal adverse impacts of the IBIP investments on sustainability factors. The Commission Delegated Regulation (EU) 2021/1257, in fact, requires insurance undertakings and insurance intermediaries providing advice to obtain information about the customer’s sustainability preferences in relation to insurance-based investment products.

Guideline 3 (Periodic assessment) clarifies that the information on the customer’s sustainability preferences should be regularly updated when updating the information on the customer or at the time of a regular period assessment.

In Guideline 4 (Collection of information on the sustainability features of insurance-based investment products) EIOPA provides guidance to insurance undertakings and insurance intermediaries on how to collect the information on the sustainability features of products, based on the SFDR pre-contractual product disclosures under the Solvency II Directive, to assess whether a product matches the sustainability preferences of the customer.

As for multi-option products, EIOPA provides guidance on how to assess whether the proportion of investments in environmentally sustainable economic activities or in other sustainable investments or the consideration of principal adverse effects caused by the insurance-based investment product meet the sustainability preferences of the customer.

Guideline 5 (Arrangements for ensuring the suitability of an insurance-based investment product) clarifies that sustainability preferences should only be assessed once the suitability has been determined in accordance with the criteria of knowledge and experience, financial situation and other investment objectives. Once the range of suitable products has been identified following this assessment, the insurance-based investment product that fulfils all the customer’s preferences, including the sustainability preferences, should be chosen among those identified. In case the assessment results in no products matching the sustainability preferences of the customer, the customer should be informed that they can adapt the sustainability preferences.

In Guideline 6 (Compliance with the record-keeping requirements) EIOPA clarifies that insurance undertakings or insurance intermediaries advising on insurance-based investment products are required to record all relevant information about the situations where a customer’s sustainability preferences are adapted, according to Commission Delegated Regulation (EU) 2021/1257. A clear explanation of the reasons for such adaptation should also be provided.

Guideline 7 (Competences of employees of insurance undertakings and insurance intermediaries to assess the sustainability preferences of customers) specifies that employees of an insurance undertaking or insurance intermediary advising on insurance-based investment products should possess the necessary knowledge and competence with regard to the criteria of the sustainability preferences and be able to clearly explain to customers the relevant aspects. Insurance undertakings and insurance intermediaries offering insurance-based investment products that promote environmental or social characteristics or that have a sustainable investment objective should have more detailed knowledge and competence, in accordance with the nature of the products they advise on.

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