18 August 2015

Insurance Europe response to a consultation by the European supervisory authorities on the technical discussion paper on PRIIPs

Insurance Europe supports the objective of the Regulation to enhance retail investor protection and improve retail investor confidence in PRIIPs. Moreover, Insurance Europe agrees that improving the transparency of the products offered to retail investors will contribute to this aim.

Insurance Europe appreciates ESA’s work on development of the methodology that is suitable for all different PRIIPs and takes their specificities appropriately into account. However, the short consultation period, made it difficult to provide in-depth feedback on such important but challenging issues. Insurance Europe understands that the timeline is determined by the PRIIPs Regulation. However, it should be avoided that the time constrains and resulting short consultation periods will result in unsuitable or insufficiently thought through methodology for some PRIIPs.

It  is  of  utmost  importance  that  the  features  of  insurance-based  investment  products  are  taken  into  account appropriately. These products provide for additional benefits and protection, in addition to offering an investment opportunity, such as guarantee of a given investment performance or a given level of benefits and protection against biometric risks (death benefits, occupational disability income, surviving dependents’ provisions etc.).

In this context, Insurance Europe would light to highlight its three key messages:

• First of all, it is not appropriate to include the biometric risk premium in the cost section of the KID. Premiums for protection against biometric risks are not costs, since the retail investor receives insurance benefits for these payments. Insurance Europe agrees that the biometric risk premium should be deemed a “price”’ rather than a cost.
• Secondly, reduction in yield (RIY) should be used as a cost indicator. In Insurance Europe’s view, RIY is more suitable than the total cost ratio (TCR) since it can capture the costs of life insurance products appropriately and has the following main advantages when compared to the TCR:
  • it takes into account the timing of costs,
  • it is not based on the term “average investment” which is not a meaningful for insurance-based investment products.
• Thirdly, Insurance Europe believes that the what-if prescribed approach is valid and meaningful for PRIIPs. It is of utmost importance that the retail investors understand the performance scenarios.

Finally, Insurance Europe wishes to stress that the KID is provided at the pre-contractual stage and, therefore, is not a personalised document. It is, therefore, not appropriate to consider several KIDs dependent on the “age of the customer and other parameters”. The retail investor will obtain personalised information later in the product distribution process. Should personalisation be considered at the pre-contractual phase, there will be an overlap notably with the insurance offer itself. Risk assessments for life insurance products take into account a large number of factors and criteria and age is only one factor that is taken into account. Age is not the only decisive biometric factor. Differentiation only according to it would not be appropriate and considering all the other factors would be unfeasible.  Lastly,  it  seems  also  important  to  note  that  developing  several  KIDs  for several ages for life-insurance products will have an effect on the compliance costs. This should be kept in mind especially because other PRIIPs manufacturers would not have to produce such a large number of KIDs. This would also lead to insurers providing retail investors with an overload of KIDs.

Position paper

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