EIOPA calls for better value for money in bancassurance in warning to banks and insurers
04 October 2022
In its warning, EIOPA calls on insurers and banks to take action or risk facing supervisory measures. It follows a thematic review - also published today - on the functioning of the EU market for CPI products sold with mortgages, consumer credits and credit cards, which revealed a number of practices that could cause detriment to consumers.
The European Insurance and Occupational Pensions
Authority (EIOPA) has today issued a warning to insurers and banks to
address consumer protection issues related to sale of credit protection
insurance (CPI) products.
While EIOPA acknowledges the various benefits of CPI products, the
thematic review unveiled significant risks for consumers arising from
poor underwriting and sales practices as well as insufficient safeguards
to avoid conflicts of interest.
EIOPA identified the following key issues that can negatively impact consumer outcomes:
- Limited choice and barriers to shopping around. In
theory consumers are free to combine credit products offered by banks
with a CPI product from any provider. However, widespread cross-selling
practices prevent consumers from doing so as 83% of banks tie CPIs to
their main credit product.
- High product diversity and price dispersion. The
thematic review revealed large differences in the coverage, terms and
conditions, exclusions, product design and features of CPI products,
making it difficult for consumers to compare them and make informed
decisions. Prices for similar CPI products vary greatly not only between
countries, but also within countries.
- Issues with cancellation and switching providers.
Consumers encounter difficulties when wishing to cancel CPIs or change
providers. 43% of insurers said consumers would have to get an agreement
from the bank and fulfil certain conditions before their policies can
be cancelled.
- High remuneration and conflicts of interest. CPIs
appear to be a highly profitable business for both the insurance
undertakings and the banks distributing them. A significant portion of
the gross written premium (GWP) paid by consumers ends up with banks and
insurers while consumers receive little in claim payouts. High
commissions can lead to significant and detrimental conflicts of
interest and to poor business practices to maximize profits.
Such practices can be highly detrimental to consumers and raise
concerns about whether insurers and banks adequately apply the
fundamental regulatory principles set out in the Insurance Distribution
Directive (IDD).
In the light of these findings, EIOPA is issuing a warning aimed at
insurers and banks acting as insurance distributors to ensure that
credit protection insurance products offer fair value to consumers.
EIOPA expects all insurers and banks acting as insurance distributors
to fully comply with the Insurance Distribution Directive (IDD),
including the product oversight and governance (POG) requirements, to
take action to address issues with high remuneration and prevent
detrimental conflicts of interest.
EIOPA expects the industry to improve consumer outcomes with CPI products, making sure they meet the needs of the target market.
Next steps
EIOPA and national competent authorities will prioritise monitoring
the European CPI market and when needed, exercise their supervisory
powers including via on-site inspections and other investigatory
methods. In the event of a breach and depending on the gravity of the
breach, appropriate sanctions and administrative measures may be applied
to insurers and banks.
Related resources:
EIOPA
© EIOPA