EIOPA Publishes Framework for Identifying Conduct Risks

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On February 20, the European Insurance and Occupational Pensions Authority (“EIOPA“) published a framework for assessing conduct risk through the lifecycle of an insurance product.

The purpose of the framework is to identify the drivers of conduct risk and the way in which these are detrimental to consumers. The aim is to help identify the issues faced by consumers and provide input on the types of risks EIOPA and national competent authorities (“NCAs“) should focus on.

The framework focuses on conduct risk throughout the full product lifecycle: from before a contract is entered through to the point at which all contractual obligations have been satisfied.

The risks set out in the framework cover:

  • Manufacturing risks. Risks arising from how products are manufactured by insurance undertakings before being marketed and how they are targeted to customers.
  • Delivery risks. Risks arising from how products are brought to the market and from the interaction between customers and insurance undertakings or intermediaries at the point of sale.
  • Business model and management risks. Risks arising from how undertakings structure, drive and manage their business and from relationships with other entities in the value chain.
  • Product management risks. After-sales risks relating to how products are managed and how insurance undertakings or intermediaries interact with and service customers until all obligations under the contract have ceased.

The framework is not intended to set out supervisory processes at a national level but should support NCAs in identifying conduct and consumer protection risks sufficiently early and clearly for effective conduct supervision. EIOPA expects the framework to contribute to the effective implementation of its conduct supervision strategy and anticipates further work in linking the identified conduct risks with the tools for assessing their impact and supervisory importance. This is likely to evolve into more systematic ongoing conduct risk monitoring as an integral part of practical supervision including, for example, developing periodic conduct risk dashboards to inform high-level debate.