The European Insurance and Occupational Pensions Authority (EIOPA) has published Preparatory Guidelines on Product Oversight and Governance (POG) arrangements to be followed by insurers (manufacturers of insurance products) and distributors.
These Guidelines provide early guidance and support national authorities and market participants with the implementation of POG requirements in preparation for formal requirements provided for in the Insurance Distribution Directive (IDD).
The Preparatory Guidelines require firms to include appropriate steps to identify the group of consumers for whom the manufacturer is designing the product (the "target market") for each product, to align this product with the relevant interests and objectives of the target market and to ensure the usage of appropriate distribution channels. Manufacturers should properly test the product before selling it to customers and should take appropriate action to mitigate unforeseen risks that subsequently arise during the lifetime of the product. Insurers need to strengthen control processes, which they follow before bringing their products to the market.
The Preparatory Guidelines foresee that distributors receive from the manufacturer all the necessary information, not only about the product, but also about its target market. It is also crucial that the distributor's activities do not contradict the distribution strategy and target market as specified by the manufacturer.
The Preparatory Guidelines clarify that management of insurers and distributors bear ultimate responsibility for the establishment, implementation, subsequent reviews and continued internal compliance with the POG arrangements.
Gabriel Bernardino, Chairman of EIOPA, said: "These Guidelines further minimise the risks of consumer detriment and mis-selling of insurance products. We need to ensure that products are designed with clear customer needs in mind but also that these products are being sold to the right customers.
Insurers and intermediaries need to place consumers at the heart of their business strategies. The tone of this change has to come from the top. These preparatory guidelines will ensure that during 2016 and 2017 supervisors will early engage with the Board and senior managers of market participants to make sure that in 2018 the IDD product governance requirements are in place".
The Final Report contains the Guidelines and the Impact Assessment. The document can be viewed here.