As required by Article #9 of EIOPA’s founding regulation, the Authority shall collect and report on consumer trends with the aim of identifying risks for the customers arising from trends in the market that may require policy proposals or supervisory actions.
EIOPA publishes a Consumer Trends Report once a year and disclosed the eighth version in December 2019. The report provides a description of the main market developments, complemented with an analysis of quantitative data and additional information related to non-confidential activities reported by the NSAs (National Competent Authorities) to promote an exchange of information and a common supervisory culture.
The main outcomes are
- The Life insurance sector has grown by 5.7% in terms of total Gross Written Premiums (GWP), mostly driven by the other insurances, with UL and IL remaining stable
- UL and IL insurance still represents the largest single LoB.
UL market has been reported by the NSA as on the top three consumer protection issues because of its complexity, lack of transparency and conflicts of interest. On the latter, commission rates has grown in 21 Member states and, considering that there is no visible correlation between commission rates and GWP growth, this may indicate the presence of conflicts of interests and aggressive sales tactics. Furthermore, an increase in the sale to vulnerable consumer groups has been registered.
An indicator of early surrenders shows potential ongoing mis-selling. This confirms the potential mis-match between consumers’ expectations and actual returns, which can be low due to the general low yield environment and the high fee structure of UL products (for Single Premium products, on weighted averages, the costs have reduced the yields by 2.50%). Costs are sometimes overlooked as these products are often bought to take advantage of tax incentives.
On the positive side, UL and IL products can offer a larger choice and higher returns in exchange for higher risk. The recent legislative changes (PRIIPS and KIDs) have led to improvements in the disclosure of returns and costs, enabling the consumers to compare the offers and have a better understanding of the fees and returns.
- For what concerns the Other Life Insurance, a retail indicator shows continued growth and high commission rates. Most concerns are related to credit life and credit protection insurance products, especially when sold by bancassurance distribution channels, which account for more than 40% of the total life GWPs. The potential consumer detriment stems from cross selling and pressure sales techniques, pushing the customers into buying a product that may not suit their needs: a large portion of the customers interviewed believed that these products were mandatory by law and they did not pay full attention to the policy exclusions. Conduct risk has been reported with regard to group policies, where the bank is the policyholder, increasing the conflict of interests and limiting the consumers’ rights.
- The non-life sector has grown by 4.4% in 2018, with a particular strong growth in Eastern European Member States. The most prominent product is still the motor vehicle insurance, although the medical expense one is the most important single LoB in terms of GWP.
- The trend is characterized by innovation: in Sweden “pay as you drive” and other digital solutions have entered the market, while in Italy the usage of black boxes has increased by 22%.
- Medical expenses is the single largest LoB, experiencing a 6% growth. Since these products are generally highly regulated, they fare well compared to other non-life insurance products when it comes to the value-for-money perspective: among all the LoBs, this one has the highest claim ratio, the lowest commission rates and a combined ratio of 97%.
- Fire and other damage to property increased in 27 Member States, showing low claims ratios and the third highest commission rates.
- General liability insurance has experienced the highest growth, with consumers who are generally satisfied, although some of them are not fully aware of coverages and exclusions, because of the cross selling techniques. For this reason, the claims ratios are generally low across the Member States.
- Motor insurance has been reported by the NSAs as the second most concerning product, mostly because of the claims management issues, including lack of adequate reasons for rejecting claims, insufficient payment amounts and delays. Still, several positive developments have been put in place to simplify the management of the claims for the customers. It is noteworthy that the ratio of number of claims to GWP is rather low: 1.1% for motor vehicle and 2.4% for other motor insurance.
- Add-on / gadget insurance continues to grow, showing high commission rates and low claims ratios. Most concerns are related to insurances sold with electronics such as mobile phones, laptops or kitchen equipment because of the conflict of interest arising from the high commission incentives. Pressure sales tactics turn out into a lack of awareness for the customers and a low value for money these products provide.
Pension sector has grown by 5%, with big changes in the decumulation phase and
a shift from Defined Benefits (DB) to Defined Contributions (DC)
- the Dutch NCA has reported that occupational pension funds are developing pension administration block chain applications with the aim of producing a more flexible and transparent pension system at a lower cost
- in Spain a provider has launched an app to help consumers to better plan their future based on their lifestyle expectations
- because of the increase in life expectancy, a strain is being put on the decumulation phase, causing the need of reforms in many Member States, where the retirement age has been reviewed and more flexibility in the withdrawal phase has been offered
- some funds in Austria and Czechia are planning to introduce mobile devices, apps and chat boxes to fasten the communication; many pension funds have developed portals and some public or industry-led initiatives have been put in place to create pension dashboards, with the aim of enabling the consumers to access all their pension information simultaneously online (people change jobs multiple times)
financial innovation has been widely reported by NSAs: digital ecosystems and
comparison websites deserve few words
- digital ecosystems are networks of products, organizations and people aggregated on a digital platform offering a joint holistic experience of service and products. They could offer opportunities and bring benefits to both insurers and customers, by letting the former access large pools of new customers and by minimizing the distribution costs for the latter. They can create a customer centric commercial experience, contributing to bridging the protection gaps
- digital ecosystems are on the rise in Europe, but still at a nascent and emerging stage. In some member states they have a great presence: in the Netherlands there are several car sharing platforms offering coverages, in Germany Amazon has started to offer an insurance product (Amazon Protect)
- un to now, insurers are enable to sell targeted and relevant products on a specific topic, like travel, healthcare, housing and cars/transports. The competition is still limited and, as the insurance is mostly the secondary product sold, customers do not generally pay attention to the coverages offered
- given the market power of certain brands, the relation between manufacturers and distributors may let the latter impose conditions on the former (e.g. payment of high fees) and it may also be difficult to discern between the two parties, making it challenging to identify what is within and outside the scope of IDD.
- Price comparison websites and price aggregators continue to increase their presence. In some Member States they are for profit and act as insurance intermediaries, while in others they are not-for-profit. In both cases they tend to over-emphasise the focus on the price rather than on other features of the insurances, like terms, conditions and exclusions. If adequately supervised, they can be of real help, offering a wider choice and minimizing the information asymmetries. Their role is expected to grow.
financial innovations regard
- development and commercialization, albeit at a very nascent stage, of cyber risk policies (Austria)
- robot advice now used for disability insurance (Netherlands)
- rewards systems for consumers who adopt a healthier lifestyle, monitored through various tools (Greece)
are working on both life and non-life sector:
- several NSAs have conducted a lot of work in the UL market and many others in the analysis of adequate implementation of the KIDs for PRIIPs. Some others have looked into the monitoring of funds returns and have identified potential issues such as illiquidity and high volatility. A bit of work has been done on dormant policies as well
- several activities have been carried out on the most common and popular motor and household insurance, while in Italy the NCA has proposed a specific work on health insurance products by having a structured dialogue with consumers associations and the industry to understand the potential risks for the customers. Some NSAs have looked at products that have seen an increase in the number of complains over the years (e.g. add-ons).