Insurance Intermediaries, are they up to some juggling?

The ever changing and stricter regulatory environment as well as the “greener profile” of modern investors require more than ever expert, resilient and flexible intermediaries to harness new challenges, build trust and increase customer protection and satisfaction.

For quite some time now, the insurance distribution business has been at the bullseye of regulatory attention for customer protection – personal data protection, mandatory and relevant advice, fee transparency– to name a few. The current multi-layered regulatory requirements, the new market environment and social expectations require the insurance intermediary to show off, on demand, their juggling skills.

"This multi-layered regulatory and market environment requires the insurance intermediary to master the art of juggling!"

Product-oversight governance introduced by the Insurance Distribution Directive (“IDD”), and its transposition in Luxembourg legislation in 2018, is a good example of this new “order” for the intermediary, and of a new ball to play with when it comes to conduct. The good news? It is a two-way street, the manufacturer (most of the time the insurer) must also contribute to the building of trust. The intermediary is not left alone when it’s time to navigate the, somewhat uncharted, waters of conduct risk. But, as the saying goes “it takes two to tango”, and it’s not unusual for Luxembourg brokers to deal with several “partners”, and setting its pace on each one is not the easiest. Keeping and defending the interest of clients as a priority and a common denominator is probably the best way for the brokers to keep their edge and have their voices heard.

 

The rise of sustainable finance

 

Another new ball thrown in the air at the multi-purpose intermediary is sustainable finance, which is the process of taking environmental and social considerations when making investment decisions. No one can ignore this push today. There is an undeniable growing trend towards a new generation of investors, who are more environmentally conscious and who do not detach their financial-return goals from the impact they are willing to make. Hence, providing policyholders with responsible products is key to keeping them in the customer base. This will not be an option, as IDD revision is underway to include the assessment of prospects’ appetite and wishes for such underlying assets and/or products. However, sustainable products often have longer holding periods and substantial earlier buy-out and surrender fees, as short-termism is not yet necessarily compatible with sustainability. This might prove to be a challenge when recommending a product to clients, locked out of their money for longer periods, but this is where the broker’s deep and holistic knowledge of their clients will come into play and support this effort.

Some juggling balls will assuredly need to be replaced by some new, or at least improved, ones. This is for sure the case of the PRIIPs ball, which is widely considered to be, at least partially, flawed and getting in the way of smooth and trust-enhancing transactions, and at the very least as another piece of paper. It will be interesting to see how the PRIIPs’ key information document (“KID”), will be revised as it currently might not be fulfilling its primary objective to improve the understanding and clarity of life insurance products (on side note, let’s also see how the IDD’s IPID for non-life products will play out in that respect). As part of the KID’s reform is the inclusion of “environmental or social objectives targeted by product” in this document, which is easier said than done in a three-page document, already bursting with mandatory information. The intermediary has a key role to play here in raising their concerns and suggestions and leading the way for the improvement of customers’ information and decision-making power.

 

Compliance, inevitably 

 

Another ball, that has been already changing hands and is never going to go away, is the compliance one. Setting up and applying proper Anti-Money Laundering and Know Your Customer (“AML/KYC) framework and procedures, are a cornerstone of modern intermediation and should not be dealt with lightly.  Not only because this is a legal duty of the intermediary, but primarily because, business-wise, this will allow a trusted relationship to develop with the insurers; bringing complete, transparent quality files will always allow one to stand out from the intermediaries’ crowd, from the insurers’ perspective. At the same time, it operationally impacts the interaction between the client and its intermediary. Making the most of it, proactively, by embedding it in a smooth, seamless customer journey is then paramount to stand out from the pack from the client’s perspective too (and we will spare you the digitisation and automation aspects of such journey, you are probably juggling enough balls by now!).

 

In a nutshell, learning how to juggle is hard, but being quick, agile and able to balance at all items the interests and requirements of the insurance ecosystem’s stakeholders, and obviously of its customers, is somehow the new normal and key to opening new opportunities, and making the most of them.  So, are you ready to catch the next balls?

Anthony Dault

Partner

PWC

Stefan Ivanov

Associate

PWC 

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