Product oversight and governance arrangements play a key role in customer protection in ensuring that insurance products meet the needs of the target market and thereby mitigating misselling. Product oversight and governance arrangements aim to ensure that the consumers interests are taken into consideration throughout the life cycle of a product, namely the process of designing and manufacturing the product, bringing it to the market and monitoring the product once it has been distributed.
EIOPA opinion is that the POG arrangements applicable to insurance companies that manufacture insurance products are closely linked to the requirements regarding the system of governance within solvency II.
Legal basis: IDD, Preparatory Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors
Guidelines serves as general principles which are consistent with the IDD.
Current stage: EIOPA published Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, published 1.2.2017
Next stage: Implementing Technical Standards which will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union
Deadline: now for insurance companies, 23.2.2018 for others
Main effects of regulation
- new, client oriented process of product development
- some organization changes
- conduct market survey
- additional tasks for agents
- distribution channels will get more information
Overview of the Project
| ANALYSIS |
| PRODUCT OVERSIGHT AND GOVERNANCE POLICY PROJECT |
| TARGET MARKET |
| PRODUCT TESTING |
| REMEDIAL ACTIONS |
| PRODUCT DISTRIBUTION ARRANGEMENTS FOR DISTRIBUTOR |
Detailed list of Project tasks
| ANALYSIS: |
| – Understanding the new requirements introduced by the Directive and impact assessment on:
o Operational model in terms of roles and responsibilities of relevant functions, processes, IT Infrastructure, distribution system, and human resources o Risk management system in accordance with Solvency II requirements – Preparing a Gap Analysis and developing an Implementation Plan – Main task which should be included in an implementation plan o adapting the corporate regulatory body (policies, guidelines, and processes) o defining the POG operating model by adapting business processes, architecture and information systems to achieve compliance and operational efficiency o identify new opportunities by revising product structure and pricing, market segmentation, clients profiling, and CRM o legal assistance for reviewing distribution agreements, incentives for distribution networks and pre-contractual and contractual documentation o place POG into the risk management system, including the ORSA process |
| PRODUCT OVERSIGHT AND GOVERNANCE POLICY PROJECT |
| – Define organizational structure responsible for the manufacturing of insurance products. Establishing responsibilities – define role of the actuary
– Define review process of product governance and oversight arrangements, independent review – Define the skills, knowledge and expertise of personnel involved in designing products (life and non life) – Define process for designing, monitoring, reviewing and distributing products – identifying a target market for which the product is considered appropriate; – identifying market segments for which the product is not considered appropriate; – carrying out product analysis to assess the expected product performance in different stressed scenarios; – carrying out product reviews and take actions if necessary; – identifying the relevant distribution channels; – verifying that distribution channels act in compliance with the manufacturer’s POG arrangements. – Define information given to distributors (target market, main characteristics of the products, its risks and costs as well as circumstances which may cause a conflict of interests at the detriment of the customer) – Define process for monitoring that distribution channels act in compliance with the objectives – Define which insurance intermediary is considered as a manufacturer – Assessing and monitoring compliance on an ongoing basis – New product documentation should include market analysis and target market survey |
| TARGET MARKET |
| – Take into account criteria such as
– the demands and needs, – where relevant with regard to the complexity and nature of the product, the – knowledge and experience in the investment field, – financial situation, the – investment objectives and the – financial literacy of the typical customer of the target market – Criteria used in demands and needs test and the suitability and appropriateness tests are generally relevant to define the target market – Experience of targeted consumers with similar products can be used as criteria – Identify the target market to which the insurance product should not be distributed |
| PRODUCT TESTING |
| – Test if the product is in line with the interests of the target market
o the manufacturer should conduct appropriate testing of the product o for insurance based investment products scenario analyses has to be performed – Assessment can be implemented by asking specific questions or by survay – Product analysis from the customer perspective
|
| REMEDIAL ACTIONS |
| – Define process when an event could materially affect the potential guarantees to the identified target market, or become detriment to customers
– Set down policies |
| PRODUCT DISTRIBUTION ARRANGEMENTS FOR DISTRIBUTOR |
| – Should establish and implement appropriate measures and procedures for
o considering the range of products and services the distributor intends to offer o reviewing the product distribution arrangements o obtaining all necessary information on the product – Define the process of review the product distribution arrangements – Product distribution arrangements should be in a written document – EIOPA believes that especially the claim ratio is an important criterion to assess whether an insurance product is of added value for consumers |