PRIIPs – Insurers challenges and the need for clarifications

On July 18, 2018 Insurance Europe published two position papers on the PRIIPs Regulation, pointing out the implementation challenges faced by insurance companies and calling the European Supervisory Authorities (ESAs) to provide clarifications on specific issues.

InReg has followed up with our own White Paper summarising the key elements and offering an overview of possible solutions.

One of the position papers issued by Insurance Europe goes through various pain points with regards to performance scenarios, whole-life products, annuities, distribution costs and information to be provided for Multi-Option Products (MOPs).

The other position paper specifically relates to the temporary UCITS exemption and Insurance Europe requests this exemption ends in December 2019 as initially planned.

Finding the right balance

The pain points listed by Insurance Europe are all valid and were to be raised to the ESAs in anticipation of the review of the PRIIPs Regulation, scheduled to happen in 2018. It is however to be noted that Insurance Europe is not the only professional association raising implementation issues on behalf of the industry they are representing, and that all together the issues raised to the ESAs relate to all sorts of financial products with very different features.

One size does not fit all

One of the main objectives of the PRIIPs Regulation was to allow comparability amongst all kinds of financial products though standardization of information, as well as to provide as much information as possible to potential investors. Reality shows these two objectives are very difficult to achieve at the same time and that some products may require some adjustments in how the information is presented, as the achievement of the PRIIPs KID in providing comprehensive and useful pre-contractual information is still to be factually demonstrated.

The UCITS KIID was to some extent successfully implemented with a certain degree of flexibility (for example by showing scenarios for structured funds rather than past performances for non-structured funds) while prescribing the overall structure of the UCITS KIID. This could be a source of inspiration for ESAs when revising the PRIIPs Regulation. Allowing some flexibility for some kinds of products may be beneficial for manufacturers that prepare the content of their KIDs, which would provide more meaningful information to prospective investors.

Keeping the main target in mind

The revision of the PRIIPs Regulation should be conducted taking into account the remarks made from all industry associations (such as the ones listed above), but the ESAs must not forget that the key player that has to be taken into account and that has to raise its voice and give its feedback is the final retail investor who actually receive the PRIIPs KID and uses it to decide which investment products he/she will choose.

In its early stages there were surveys conducted with retail consumers in order to assess the content and presentation of the information that should have been included in the PRIIPs KID. Those surveys took place at the same time as the consultation process started.

Seven months after implementation and with a revision of the regulation arriving, one would consider it would be highly valuable to conduct surveys with a panel of investors having read and used some PRIIPs KIDs, and formally collect their feedbacks in order to supplement the positions stated by industry associations… keeping in mind that the real target is to properly inform potential investors.