News Update Financial Regulatory
3 April 2023
In this News Update we discuss EIOPA's supervisory statement on unfair 'price walking' practices, the recent consultation document on a proposed insurance guarantee scheme in addition to the existing legislative framework and amendment of the Recovery and Resolution Insurers Act.
EIOPA | Supervisory statement on unfair 'price walking' practices
On 16 March 2023, the European Insurance and Occupational Pensions Authority (EIOPA) published its supervisory statement on differential pricing practices, with an emphasis on unfair 'price walking' practices. As EIOPA explains, unfair price walking practices occur when the premium paid by the customer is repeatedly increased at the renewal stage based on factors not related to underwriting risk or cost of services. Such factors include analysing customer-specific characteristics to predict behaviours such as the amount of a premium increase an individual customer will tolerate before shopping around. 'Price walking' can unfairly affect vulnerable customers such as the elderly and people with limited access to or understanding of digital channels.
The supervisory statement relates only to non-life insurance lines of business of both insurance undertakings and insurance intermediaries. It addresses all differential pricing practices, regardless of the underlying system (e.g. AI) or technology and regardless of the type of customer. However, EIOPA urges competent authorities to focus on price differential practices applied to retail customers, including small and medium sized enterprises, in light of these customers' heightened exposure to the risks arising in this area.
EIOPA covers three main topics, labelled as 'expectations'. Expectation 1 relates to unfair treatment. Expectation 2 elaborates, in summary, on the product governance requirements as detailed in the Delegated Regulation on product oversight and governance requirements for insurance undertakings and insurance distributors. Expectation 3 addresses supervision by competent authorities.
1. Differential pricing practices must not result in unfair treatment (i.e. treatment which is not compliant with Article 17(1) of the Insurance Distribution Directive);
2. Product oversight and governance measures and procedures should ensure that differential pricing practices do not result in detriment. Put briefly, this includes the following aspects:
- product approval process: this should be proportional to the complexity of product design, with approval granted at an appropriate hierarchical level. Measures should be in place to ensure the identification, prevention and mitigation of the main drivers of conduct risk that could emerge from differential pricing practices;
- target market: level of granularity and product design process should take account of the target market. Staff involved in identifying and defining the target market should have sufficient adequate professional and educational skills;
- product testing process: this should be sufficiently customer centric and aligned with the needs, objectives and characteristics of the target market, including at renewal. It should take account of the expected life cycle of the product;
- product monitoring and review: this should be conducted to identify any possible adverse impact. Where identified, appropriate measures should be taken to remedy the detriment;
- documentation: the processes and procedures should be clearly structured and documented;
- distribution channels: insurance manufacturers should provide sufficient product information to insurance distributors.
3. Competent authorities should supervise the obligation to ensure differential pricing practices do not lead to unfair treatment
Consultation on insurance guarantee scheme
On 8 March 2023, the Minister of Finance published a consultation document on the possibility of an insurance guarantee scheme (similar to the deposit guarantee scheme for banks). The consultation document contains a survey to explore the views of interested parties on an insurance guarantee scheme, or ‘IGS'. The purpose is to establish whether and how an IGS should be introduced – in addition to the existing legislative framework – and what concrete parameters would need to be in place to make it feasible.
In the Netherlands, even without an IGS, the Recovery and Resolution Insurers Act (Wet herstel en afwikkeling van verzekeraars) gives policyholders protection in the form of a stronger position in the event of the insurer’s bankruptcy. This idea is being now revisited, based on an earlier undertaking given to the Dutch Senate and the possible future developments at the European level. If an IGS is introduced, the Minister’s preferred route would be to approach this within the context of European minimum harmonisation. An IGS that is coordinated at the European level makes sense, given that the insurance market operates at the European level.
This consultation is related to a KPMG survey into insurance guarantee schemes aimed at finding out more about the costs and benefits of introducing an IGS in the Netherlands. When presenting the report to the Senate and House of Representatives, the Minister agreed to study whether an IGS should be introduced on top of the existing legislative framework, and if so on what terms. The consultation period ends on 19 April 2023.
Amendment to the Recovery and Resolution Insurers Act
The purpose of the bill to amend the Recovery and Resolution Insurers Act (Wijzigingswet herstel en afwikkeling van verzekeraars, the ‘bill’) is to streamline the system of legal protection in connection with the resolution of insurers. The bill also brings several minor improvements to the resolution framework for insurers.
The wording of the bill follows the Bank Recovery and Resolution Directive, or 'BRRD', which is implemented in the Financial Supervision Act (Wet op het financieel toezicht), the General Administrative Law Act (Algemene wet bestuursrecht) and the Bankruptcy Act (Faillissementswet). Upon introduction in 2021 of the Loss Absorption and Recapitalisation Capacity of Banks and Investment Firms Implementing Act (Implementatiewet verliesabsorptie- en herkapitalisatiecapaciteit van banken en beleggingsondernemingen, ‘BRRD II Implementing Act’), various omissions in the resolution laws for banks (under the earlier implementation of BRRD I) were identified and repaired. In the Netherlands, the resolution framework for insurers is largely based on the corresponding framework for banks. As such, the resolution framework for insurers should be modified to reflect these changes. The opportunity will be taken to also remedy several inaccuracies and legislative shortcomings.
Negotiations are underway at the European level about a proposed directive to establish a recovery and resolution framework for insurance and reinsurance firms: the Insurance Recovery and Resolution Directive, or 'IRRD'. Those negotiations are still in an early stage. The Dutch Cabinet will strive for the minimum harmonisation approach to ensure that the final framework aligns with the bill as closely as possible. The preparations for this amending legislation took the European Commission’s proposal for the IRRD into account. The bill primarily contains amendments that do not show any material overlap with the proposed IRRD, except for streamlining the system of legal protection during the resolution of insurers.
The Financial Supervision Act provides for an exception to the general legal protection under administrative law concerning decisions to proceed to resolution. That specific rule allows for these decisions to be appealed directly to the Trade and Industry Appeals Tribunal (subject to a 10-day filing deadline). The Tribunal must then give its decision within 14 days of the appeal being brought. The possibilities for objection and for appeal in the first and second instance do not extend to decisions refusing to pass a resolution decision, nor to decisions not to utilise a resolution instrument. When this system of legal protection was introduced, it copied the provisions for resolutions of banks and investment firms.
The accelerated legal protection system was only applied to the actual resolution decision, not to decisions not to utilise specific resolution mechanisms. For banks, this possibility was subsequently introduced in the BRRD II Implementing Act. For insurers, it will be introduced under the new bill.
Other financial regulatory publications
We have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision since our March 2023 Update.
- Dutch Authority for the Financial Markets (AFM) news item: Comparison chart to replace service provision document (in Dutch only)
- News item: Sector to be given six months to comply with the amended Regulatory Technical Standards under the Sustainable Finance Disclosure Regulation on fossil gas and nuclear energy (in Dutch only)
- AFM report: Cyber insurance: exploration of the Dutch insurance market
- The Further Regulations on the Supervision of the Conduct of Financial Undertakings (Nadere Regeling gedragstoezicht financiële ondernemingen Wft) was amended per 1 April 2023 in connection with the replacement of the service provision document (dienstverleningsdocument) by the comparison chart (vergelijkingskaart)
- News item: De Nederlandsche Bank (DNB) website archive 2010-2020 available in the National Archives (in Dutch only)
- Letter to banks on topics and trends in money laundering, terrorist financing and sanctions (in Dutch only)
- Publication of DNB's supervisory approach for climate and environmental risk management (guide in Dutch only)
- Trust office licence of D-Max Corporate B.V. withdrawn
AFM & DNB
- AFM and DNB's Policy Rule on Fitness 2012 (Beleidsregel geschiktheid 2012) was amended per 1 April 2023 (in Dutch only)
ESAs and ECB
- European Supervisory Authorities (ESAs) and European Central Bank (ECB) Joint Statement on climate-related disclosure for structured finance products
- European Banking Authority (EBA) reports on the annual market and credit risk benchmarking exercises
- EBA no-action letter on the boundary between the banking book and the trading book provisions
- Final revised Guidelines on methods for calculating contributions to deposit guarantee schemes
- European Securities and Markets Authority (ESMA) Final Report on Guidelines on MiFID II product governance requirements
- Updated Q&As on the application of the Regulations on European Social Entrepreneurship Funds (EuSEF) and European Venture Capital Funds (EuVECA) , on European crowdfunding services providers and on the application of the Alternative Investment Fund Managers Directive (AIMFD)
- ESMA opinion the trading venue perimeter; clarification of 'multilateral system'
- ESMA Public Statement on derivatives on fractions of shares
- ESMAs Securities and Markets Stakeholder Group advice to ESMA on additional questions relating to greenwashing
Ministry of Finance
- The Act amending the Trust Offices Supervision Act (Wet toezicht trustkantoren 2018) in connection with measures to prohibit trust services in situations with a high exposure to integrity risks was published on 21 February 2023. On 3 April 2023, no date had yet been established for its entry into force (in Dutch only)
- The Financial Markets Amendment Act 2022-II (Wijzigingswet financiële markten 2022-II) was published on 21 February 2023. On 3 April 2023, no date had yet been established for its entry into force (in Dutch only)
- Consultation on amending the rules for mutual funds, exempt investment funds and tax-facilitated investment funds. The consultation period ends on 5 April 2023 (in Dutch only)
- Letter to the House of Representatives on the latest developments in the financial sector’s climate change commitment (in Dutch only)
- Policy agenda for the financial sector (in Dutch only)
- As of 1 July 2023, entry into force of obligation for holders of a declaration of no objection for acquiring or increasing a qualifying holding in a financial undertaking to comply with the reputation requirement on an ongoing basis rather than only upon application (in Dutch only)
- 20 February 2023: parliamentary answer on the scope of marketing communications under the Markets in Crypto-Assets Regulation