04 Oct 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has today issued a warning to insurers and banks to address consumer protection issues related to sale of credit protection insurance (CPI) products. In its warning, EIOPA calls on insurers and banks to take action or risk facing supervisory measures. It follows a thematic review - also published today - on the functioning of the EU market for CPI products sold with mortgages, consumer credits and credit cards, which revealed a number of practices that could cause detriment to consumers.
While EIOPA acknowledges the various benefits of CPI products, the thematic review unveiled significant risks for consumers arising from poor underwriting and sales practices as well as insufficient safeguards to avoid conflicts of interest.
EIOPA identified the following key issues that can negatively impact consumer outcomes:
- Limited choice and barriers to shopping around. In theory consumers are free to combine credit products offered by banks with a CPI product from any provider. However, widespread cross-selling practices prevent consumers from doing so as 83% of banks tie CPIs to their main credit product.
- High product diversity and price dispersion. The thematic review revealed large differences in the coverage, terms and conditions, exclusions, product design and features of CPI products, making it difficult for consumers to compare them and make informed decisions. Prices for similar CPI products vary greatly not only between countries, but also within countries.
- Issues with cancellation and switching providers. Consumers encounter difficulties when wishing to cancel CPIs or change providers. 43% of insurers said consumers would have to get an agreement from the bank and fulfil certain conditions before their policies can be cancelled.
- High remuneration and conflicts of interest. CPIs appear to be a highly profitable business for both the insurance undertakings and the banks distributing them. A significant portion of the gross written premium (GWP) paid by consumers ends up with banks and insurers while consumers receive little in claim payouts. High commissions can lead to significant and detrimental conflicts of interest and to poor business practices to maximize profits.
Such practices can be highly detrimental to consumers and raise concerns about whether insurers and banks adequately apply the fundamental regulatory principles set out in the Insurance Distribution Directive (IDD).
In the light of these findings, EIOPA is issuing a warning aimed at insurers and banks acting as insurance distributors to ensure that credit protection insurance products offer fair value to consumers.
EIOPA expects all insurers and banks acting as insurance distributors to fully comply with the Insurance Distribution Directive (IDD), including the product oversight and governance (POG) requirements, to take action to address issues with high remuneration and prevent detrimental conflicts of interest.
EIOPA expects the industry to improve consumer outcomes with CPI products, making sure they meet the needs of the target market.
EIOPA and national competent authorities will prioritise monitoring the European CPI market and when needed, exercise their supervisory powers including via on-site inspections and other investigatory methods. In the event of a breach and depending on the gravity of the breach, appropriate sanctions and administrative measures may be applied to insurers and banks.
- Warning to insurers and banks on Credit Protection Insurance (CPI) products
- Thematic review on Credit Protection Insurance (CPI) sold via banks
- Digital report (short version)
- Animated video on the key findings
- Video interview with EIOPA's experts on the methodology, the findings and next steps
- Online event on 27 October 2022