The first set of Questions and Answers (Q&As) on the application of the Insurance Distribution Directive (IDD) were published today by the European Insurance and Occupational Pensions Authority (EIOPA). Answers were given to questions on the requirements for the Product Oversight and Governance (POG) arrangements and for Insurance Based Investment Products (IBIPs). Some of the Q&As included:
Q: What action are manufacturers expected to take if products are distributed to customers outside of the target market?
A: In cases where there have been instances of the product being distributed outside the target market, the manufacturer will need to assess whether there are any adverse consequences for customers outside of the target market who were provided with the product. If adverse consequences are identified, manufacturers must, in accordance with Article 7(3) of Delegated Regulation 2017/2358, take appropriate action to mitigate the situation and prevent further occurrences. Whereas Recital 9 of the IDD confirms that the IDD does not prohibit the distribution of insurance products to customer outside of the target market, EIOPA assumes that distributing insurance products to customers outside of the target market is an exceptional event if the product oversight and governance arrangements are appropriately applied by insurance undertakings and intermediaries.
Q: How detailed should the information obtained for the appropriateness test be? In the case of a unit-linked insurance contract, does it cover both the product and its underlying assets?
A: The level of detail will be case-specific and depend upon the individual circumstances of the sale including the nature of the product or service offered or demanded, the risks involved and the knowledge and experience of the customer. Article 17(1) of Delegated Regulation 2017/2359 requires that the information obtained shall include information to the extent appropriate to the nature and type of product or service offered or demanded. Therefore, it should relate to the product overall, including where relevant, such as in the case of a unit-linked insurance contract, the underlying investment assets.
Article 19(3) of Delegated Regulation 2017/2359 contains requirements for records to be kept in relation to the appropriateness assessment, in particular regarding the result of the assessment, warnings given to the customer and storage in an accessible manner for future reference.
The Q&As can be found here.