The European Insurance and Occupational Pensions Authority (EIOPA) has published its Report on good practices for disclosure and selling of variable annuities (VAs). The report forms part of EIOPA’s own initiative work on consumer protection and financial innovation and it aims to promote common supervisory approaches and practices.
The publication identifies which type of information customers should receive in order to be able to take informed decisions when considering buying a variable annuity and refers to good practices regarding advice to be given to customers in this context.
In relation to good disclosure practices, the report states that customers need to be informed how the product works under different market conditions, what they are charged and which options they can exercise during the life of the contract. In addition, they should have some general information on the product provider, the law governing the contract and details on the relevant supervisory authorities. For this purpose the report provides an indicative list of frequently asked questions that companies may use in order to ensure that potential customers will have a good understanding of the product, the charges and any specific risks that they should be aware of.
In terms of the good selling practices, the report concludes that selling should always be based on advice by suitably qualified salespersons. The publication suggests an indicative list of questions that should be addressed to ensure that the offered product meets the customer’s needs and demands and consequently prevents the risk of mis-selling.
The report also emphasises that insurance companies should ensure adequate sales by, inter alia, carrying out a due diligence on the intermediary firms as well as reviewing the clients they have taken on.
The Report on good practices for disclosure and selling of VAs was developed by an Expert Group, set up in May 2011 under the auspices of EIOPA’s Committee on Consumer Protection and Financial Innovation (CCPFI). In October 2011, the draft report was put out for public consultation and received 17 responses, of which 4 have been submitted by consumer organisations. The good practices identified in the publication received overall support during the public consultation. The report also benefitted from the observations made by EIOPA’s Insurance and Reinsurance Stakeholder Group.
Gabriel Bernardino, chairman of EIOPA, said “With this report EIOPA is fulfilling its role in promoting transparency, simplicity and fairness in the insurance market and made another step towards the building up of a common supervisory culture in the EU. This report identifies how consumer interests can be better protected as regards the sales of variable annuities and shows EIOPA’s commitment towards consumer protection. I do expect that insurance companies will seriously take into consideration these good practices and incorporate them in their practices of the VAs disclosure and selling. From our side we are going to closely monitor and review this issue in the following years."
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