EIOPA finalises methodology on value-for-money benchmarks

Written by Adam Cadle

07/10/2024

EIOPA has today published its methodology on setting value-for-money benchmarks for unit-linked and hybrid insurance products.

“Such benchmarks are central to EIOPA’s and national supervisors’ efforts to adopt an increasingly data-driven and risk-based approach to the supervision of value for money risks,” the Authority stated.

“They will allow supervisors to better identify products with high value-for-money risks and ensure that consumers are placed at the centre of insurance products.”

The methodology outlines a three-step approach to create reference benchmarks:

Step 1 – Product clusters: Unit-linked and hybrid products are highly diverse across Europe and the same benchmarks cannot be applied to all products. Therefore, the first step is to cluster products with similar features into groups based on policyholders’ needs. The benchmarks methodology sets out a list of criteria for categorising products. This fundamental step intends to bring much-needed comparability to products distributed across Europe.

Step 2 – Value-for-money indicators: The benchmarks methodology defines indicators for costs and returns around which value for money benchmarks are calculated. Specific indicators allow for a more transparent, efficient and reliable comparison of products. This, in turn, would help identify products that offer poor or no value to consumers and lead to more supervisory scrutiny.

Step 3 – Setting benchmarks: EIOPA will use the data it collects for the Costs and Past Performance report to calculate benchmarks. EIOPA will not request additional reporting to help minimize the burden on the market.

In addition to these steps, national supervisors will be able to consider other qualitative and quantitative benefits that unit-linked and hybrid products offer to consumers and take them into account when assessing value for money.

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