On 20 July 2022, the European Insurance and Occupational Pensions Authority (“EIOPA”) published precious guidance (Guidance on the integration of sustainability preferences in the suitability assessment under the Insurance Distribution Directive (IDD) (EIOPA-BOS-22-391) (the “Guidance”) on ESG requirements in the insurance sector.
The Guidance clarifies how, in practice, insurers and insurance intermediaries should integrate their customers’ sustainability preferences into the suitability assessment required when distributing or advising on insurance-based investment products (“IBIPs”).
The Guidance should be read together with EIOPA’s Feedback Statement on the public consultation (the “Public Consultation”) on Guidelines on the integration of customer sustainability preferences in the suitability assessment under the IDD (EIOPA-22/704).
1. Aim of the Guidance
The Guidance aims at:
- promoting a better understanding of the new rules on sustainability preferences imposed under the Commission Delegated Regulation (EU) 2021/1257 (the “New Rules”) ahead of their application date of 2 August 2022;
and accordingly at
- facilitating the correct implementation of such rules.
2. Nature of the Guidance
The Guidance is not to be considered as formal Guidelines and is hence not binding.
EIOPA has specified that, as a result of the Public Consultation (which ran until 13 May 2022), it has paused its work on issuing formal guidelines in order to focus on providing national competent authorities, insurers, and insurance intermediaries with a simple, user-friendly document to facilitate the latter’s comprehension of how to implement the New Rules in practice.
EIOPA’s work on a stronger convergence tool may be resumed once a certain experience has been gathered by insurers, intermediaries, and national competent authorities as to how to apply the New Rules.
3. Key considerations
A. Impact of the limited availability of relevant data
The Guidance recognizes that the current regulatory framework on the disclosure of investments in sustainable activities, which is crucial to enable insurers and insurance intermediaries to assess whether products match the sustainability preferences of customers, is not yet finalized and still evolving.
The Guidance further recognizes that the application date of the New Rules precedes the deadline for the reporting on company data under the relevant disclosure rules.
Nevertheless, the Guidance indicates that insurers and insurance intermediaries should responsibly disclose on sustainability, based on the data currently available, and make best efforts to ensure good data quality.
B. Practical approach
The Guidance is structured around the following 7 practical questions:
- What information needs to be provided to customers about the purpose and the scope of the suitability assessment with regard to sustainability preferences?
- How do you collect information on sustainability preferences from the customer?
- How do you carry out a periodic assessment of the customer’s sustainability preferences?
- How do you collect information on the sustainability features of IBIPs?
- What arrangements are necessary to ensure the suitability of an IBIP?
- How do you comply with the record-keeping requirements when the customer adapts his/her preferences?
- What competencies are needed to assess a customer’s sustainability preferences?
The Guidance links each question to the underlying regulatory requirements deriving from the New Rules and answers it by explaining applicable principles, key concepts, and the steps for practical implementation. Explanations are also illustrated by diagrams and flow charts.
C. Non-exhaustive character
The Guidance is intended as a tool to help insurers and intermediaries comply with the New Rules. However, it specifies that entities should not limit their awareness to the information it contains.
- Read the EIOPA Guidance here_
- Access the Public Consultation on EIOPA-22/704 here_
- Read EIOPA’s Feedback Statement on the Public Consultation here_
- Read our newsflash on integrating sustainability into the Solvency II and IDD frameworks here_
- Access our timeline on key ESG milestones in the banking and insurance sectors here_