European Insurance and Occupational Pensions Authority (EIOPA) launched on April 13th, 2022 a public consultation on draft Guidelines on the integration of sustainability in the advice process under the Insurance Distribution Directive 2016/97 (IDD).
The Guidelines addressed to competent authorities, insurance undertakings and insurance intermediaries aim at:
- Promoting a coherent application of the Delegated Regulation by insurance undertakings and insurance intermediaries across Member States and National Competent Authorities (NCAs);
- Restricting the potential for the mis-selling of insurance products with regard to the sustainability preferences of consumers; and
- Promoting a more convergent approach by NCAs in the supervision of insurance undertakings and insurance intermediaries.
EIOPA is issuing these guidelines to clarify the application of sustainability preferences of the customer under the suitability assessment provided for IDD. The amendments introduced in 2021 by Commission Delegated Regulation 2021/1257 aim to ensure that customers can invest and save sustainably and facilitate their participation in the transition to a low-carbon, more sustainable, resource-efficient and circular economy in line with the Sustainable Development Goals.
EIOPA provides following 7 Guidelines:
Guideline 1 - Information to customers about the purpose and the scope of the suitability assessment with regard to sustainability
In order to help customers understand the concept of ‘sustainability preferences’, insurance undertakings and insurance intermediaries should explain to retail clients the terms in a clear, comprehensible, and not misleading manner. They should further explain the distinction between its different elements as defined in Article 2(4) of Commission Delegated Regulation (EU) 2017/2359 and the difference between products with and without such sustainability features.
The explanations to be provided to the customer can be presented in ‘layers’, for instance in the introduction to a questionnaire on the sustainability preferences.
Guideline 2 – Collection of information on sustainability preferences from the customer
Insurance undertakings and insurance intermediaries should obtain the following information from customers:
a) whether the customer has any sustainability preferences (yes/no)
b) whether the customer has sustainability preferences with regard to aspects defined in points a), b) or c) of Article 2(4) of Commission Delegated Regulation (EU) 2017/2359 regarding the minimal proportion of sustainable investments in connection to Taxonomy Regulation, SFDR and Principle Adverse Impact, and if the customer has a preference for a combination of them.
c) the minimum proportion invested in environmentally sustainable investments as defined in Taxonomy regulation (EU) 2020/852) and in SFDR (EU) 2019/2088).
d) which principal adverse impacts (PAI) should be considered including quantitative or qualitative criteria
e) for multi-option products (MOPs), insurance undertakings and insurance intermediaries should collect information from the customer on whether all underlying options should consider PAI of investment decisions on sustainability factors, or only a proportion or a selection of one or more underlying options
Insurance undertakings and insurance intermediaries should explain to the customers that there are two Key Performance Indicators (KPI) used to calculate the proportion of environmentally sustainable investments as defined the Taxonomy Regulation ((EU) 2020/852):
- KPI 1 shows the Taxonomy-alignment of the product including all of its investments.
- KPI 2 shows only the Taxonomy-alignment of the assets that are not government bonds.
Guideline 3 - Periodic assessment
In line with recital 10 of Commission Delegated Regulation (EU) 2021/1257, for existing customers, for whom a suitability assessment has already been undertaken, insurance intermediaries and insurance undertakings should identify the customer’s individual sustainability preferences at the next regular update of the existing suitability assessment and are not required to conduct the periodic assessment at the date of the application of the new requirements.
Guideline 4 – Collection of information on the sustainability features of insurance-based investment products
EIOPA provides guidance to insurance undertakings and insurance intermediaries on how to obtain the information on the sustainability features of products, based on the SFDR pre-contractual product disclosures under Directive 2009/138/EC (Solvency II Directive), in order to assess whether a product matches the sustainability preferences of the customer. With regard to multi-option products, EIOPA provides guidance on how insurance undertakings and insurance intermediaries should assess whether the proportion of investments in environmentally sustainable economic activities or in other sustainable investments or the consideration of principal adverse impacts engendered by the insurance-based investment product meet the sustainability preferences of the customer.
Guideline 5 - Arrangements for ensuring the suitability of an insurance-based investment product (IBIP)
EIOPA clarifies that sustainability preferences should only be assessed once the suitability has been assessed in accordance with the criteria of knowledge and experience, financial situation and other investment objectives. Once the range of suitable products has been identified following this assessment, in a second step, the insurance-based investment product that fulfils all the customer’s preferences, including the sustainability preferences, should be chosen among the ones identified in the first step.
Guideline 6 – Compliance with the record-keeping requirements
Commission Delegated Regulation (EU) 2021/1257 introduces the possibility for the customer or potential customer to adapt the sustainability preferences in the case where no IBIP is made available by the insurance undertaking or insurance intermediary that meets the customer’s sustainability preferences.
Insurance undertakings and insurance intermediaries providing advice on insurance-based investment products are required to keep records of all relevant information about the situations where a customer’s sustainability preferences are adapted in accordance with Article 9(6) of Commission Delegated Regulation (EU) 2017/2359, including a clear explanation of the reasons for such adaptation.
Guideline 7 – Competences of employees of insurance undertakings and insurance intermediaries in order to assess the sustainability preferences of customers
EIOPA clarifies that employees of an insurance undertaking or insurance intermediary providing advice on insurance-based investment products should possess the necessary knowledge and competence with regard to the criteria of the sustainability preferences as specified in point (4) of Commission Delegated Regulation (EU) 2017/2359 and be able to explain to customers the different aspects in a language that is clear, succinct, comprehensible and not misleading.
What are the next steps?
EIOPA will consider the responses received to this consultation paper in May and June 2022 and expects to publish the final Guidelines in July 2022.
How does this affect our services?
cleversoft's service IDD Adapter assists the insurance companies in their advisory process of establishing end-client's sustainability preferences in a comprehensive and accessible way. Want to learn more about IDD Adapter? Contact our Sales Team!