Second EIOPA report on the implementation of IDD (Directive 2016/97)
On 15 January 2024, EIOPA released its second report1 on the implementation of the IDD, two years after the previous one. We summarize the main results of the analysis below.
Changes in the European market
Inflation and rising interest rates
Inflation and rising interest rates in the past two years have affected the insurance market. On the one hand, companies are facing rising claims costs, caused by the general increase in service prices. On the other, consumers are facing a reduction in purchasing power, a situation made more critical by rising premiums and deductibles, which, more and more frequently, is leading them to forego buying insurance policies.
In 2021, EIOPA published a Supervisory Statement emphasizing the importance for manufacturers to regularly assess the “value for money” of products.2 This monitoring is crucial to identify certain events, including inflation, that could have a significant impact on product characteristics. Attention to these topics varies among Member States. As far as Italy is concerned, IVASS recently published a consultation paper on supervisory expectations in the Product Oversight and Governance (POG) field focusing on the necessary assessment of the value for money of products.3
Bancassurance and distance selling
Bancassurance has played a significant role in the distribution of life products, while the non-life sector is still mainly dominated by agents. As for distance selling, the number of products purchased online is rather modest in all Member States while registering a steady growth from year to year, in line with the ongoing digitalization process.
Impact of the new regulatory framework
Professional skills of distributors
Over the past two years, an improvement in the level of professionalism of intermediaries has been observed in some Member States. This improvement can be attributed to several factors, including frequent mystery shopping inspections, internal audits conducted by the insurance companies and advanced training programs.
Digitalization and new distribution models
Digitalization is still a source of some critical issues:
- Pre-contractual disclosure regulations still show limitations in adapting to the digital reality (policy documents are often not provided well in advance of the conclusion of the contract, increasing the risk that the customer does not have sufficient time to make an informed decision).
- Uncertainties about the definition of “insurance distribution” persist, leading to confusion among market participants. It’s not always easy to distinguish between mere introducers and distributors (for example, EIOPA refers to the presence of banners on digital platforms that redirect users to intermediaries' websites. In this situation, it’s not always clear to either the consumer or the platform provider who is performing insurance distribution).
- There’s a lack of guidelines on collecting information regarding the needs of policyholders/insureds through AI and machine learning.
- Unfair pricing practices, such as “price walking”, which, through the use of AI systems or sophisticated profiling tools, result in constant premium increases unrelated both to the insured's risk profile and the cost of services offered.
Business practices and consulting sales
While in some Member States EIOPA observed an improvement in the quality of advice provided to policyholders, in some cases there’s still concern from consumer associations about unfair business practices. In some Member States, for example, there is no requirement to record telephone conversations when products are sold at a distance, making it more complex for the insured to defend themselves in the event of a dispute.
Sustainability and insurance distribution
Initial data provided by regulators on implementing new sustainability regulations highlight the challenges consumers are facing in understanding concepts that are far from simple.
Group policies
The recent European Court of Justice ruling on group policies4 (by which the criteria for understanding when the policyholder also acts as an insurance intermediary were identified) has had a major impact in several Member States where national authorities have already taken specific positions or are still considering whether and how to intervene.
Supervisory activities of national authorities
The resources of national authorities dedicated to the supervision activities has increased slightly in the past two years.
Some authorities reported that they do not yet have sufficient tools to carry out effective supervision while others (including IVASS) appear to lack “intermediate” intervention tools such as suspension from operation (exercisable by IVASS only in a few specific cases).
Product Oversight and Governance (POG)
In July 2023, EIOPA published a “Peer review report” with the aim of examining how national supervisors are overseeing the implementation of POG requirements by companies and intermediaries.
The greatest critical issues continue to be related to the “value for money” and its assessment, both during the insurance product design and during its monitoring.
Conflicts of interest and commissions
Over the past two years, many Member States have taken measures to limit excessive commissions or increase transparency in this area.
For example, some Member States have introduced a cap on commissions related to distributing certain types of policies, mostly related to credit or financing protection.
