EIOPA presents its value for money benchmark methodology for unit-linked and hybrid insurance products

The European Insurance and Occupational Pensions Authority (EIOPA) published today 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. 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.

Over the years, supervisors across Europe have consistently reported issues with some parts of the unit-linked and hybrid market. The issues are often related to the mismatch between consumers’ expected returns and the actual benefits received, or to unjustified costs, fees and penalties. While products that do not offer value for money are not widespread, EIOPA’s Eurobarometer Data shows that they can have a significant impact on consumers’ trust. 

To tackle these concerns and proactively identify products offering poor value for money, EIOPA made value-for-money a key priority as early as 2020. The methodology for value-for-money benchmarks published today is a tool that will help supervisors effectively deal with risks in the unit-linked and hybrid market affecting consumers.

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.

Making sure that insurance products offer value for money to consumers plays an important role in EIOPA’s conduct supervision. When value for money considerations are well integrated throughout the insurance value chain, including by manufacturers, distributors, asset managers, and intermediaries, it ensures consumers pay a fair price for their insurance product, that covers costs, services and returns.

 Read the Benchmarks methodology

Related publications:

• EIOPA issued a Supervisory Statement in November 2021 which offers a definition of value-for money and underlined value-for-money-related principles in existing regulation.
• This statement was followed by a methodology document in October 2022 that lays the foundations of a common European approach to identifying, monitoring and mitigating risks related to unit-linked products that offer poor value for money to consumers. 
• In December 2023 EIOPA launched a public consultation to gather feedback from stakeholders on its proposed benchmarks methodology. The feedback statement and the resolution of comments table are published today on the consultation web page.
• Finally, EIOPA collected further data in February 2024 through a pilot exercise covering 9 member states and 22 insurers.