The RTS determine the presentation and content of the Key Information Document (KID), which is the central component of the PRIIPs regulation. The KID is intended to provide consumers with a clear understanding of different investment products. However, because the KID does not explain insurance-based investment products correctly, consumers will not be able to make a meaningful comparison of these products.
Michaela Koller, director general of Insurance Europe, commented: “Insurance Europe is concerned that consumers will receive incorrect information about insurance products, which will wrongly appear more expensive and more risky than they actually are.”
Insurance-based investment products provide insurance protection to investors that other investments products don’t include.
However, because the KID doesn’t explain this properly it makes insurance-based investment products seem more expensive than other products, without explaining that the other products don’t include this additional protection.
The KID also misrepresents the risk of insurance-based investment products. The PRIIPS regulation requires one indicator that consumers can easily understand. Now the methodologies used to derive this indicator are not fit for purpose for insurance-based investment products and as a consequence overstate the risk of those products.
Koller said: "It is also concerning that the KID will fail to achieve its objective of being short and easy to understand. Once it’s filled in, it is definitely not short and certainly not easy to understand.”
The reason for this is that the RTS do not work from a legal and technical point of view. In addition, once the KID is translated into all EU languages and filled in it will exceed its original objective of being three pages long.
In contrast to assumptions by the European Commission, the insurance industry cannot begin the implementation process straight away, because the legislative process that enables co-legislators to either accept or reject the legislation could take until September.
Therefore, in the best case scenario, this leaves just three to four months for the industry to implement the KID by 31 December.
Koller added: “The most important thing is that consumers are properly informed. Therefore, insurance-based investment products need to be appropriately explained and their risks need to be correctly reflected. The insurance industry also needs sufficient time to program, test and launch the KID correctly, so that it delivers its objectives and allows consumers to better compare and understand these products. Consequently, a one-year extension of the PRIIPs application date is required to ensure that consumers receive the best outcome.”
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