Simpler and better value products to enhance trust and increase retail investments

Although Europeans save more than their American peers, they remain concerned about their financial situation at retirement. In 2022, the EU saving rate was at 12.7%, compared to 3.7% in the US.[1] However, according to EIOPA’s 2023 Eurobarometer Survey, only 42% of Europeans feel financially confident in their retirement – 37% of women and 47% of men.

The high EU saving rate shows potential for increased direct retail participation in capital markets. Nevertheless, more efforts are needed to ensure Europeans have access to a broad range of long-term saving products which offer value for money, including insurance-based investment products, life insurance and personal pension products. The Survey also shows that European consumers who save through these products tend to feel more secure about their retirement.[2] 

However, increased retail investment in capital markets will not occur unless consumers trust product providers. Currently, consumer trust in insurance manufacturers (45%) and pension providers (38%) remains low. 

A condition for encouraging consumers to invest in capital markets is a sound regulatory and supervisory framework. Therefore, it is important that consumers are offered choices that are simple, transparent and easy to understand, including regarding key trade-offs such as safety versus potential for higher returns, liquidity versus better long-term returns.

Products must align with consumers’ needs and objectives and offer value for money. EIOPA’s work indicates that products with low returns/high costs (about 15% of the products within EIOPA’s Costs and Past Performance sample) can significantly impact consumer trust. Nearly 27% of European consumers believe that their insurance-based investment products do not offer value (2023 EIOPA Eurobarometer). 

The digital transformation of the insurance and pensions sectors is creating new opportunities by lowering costs and enabling the development of increasingly personalised offers. Providing Europeans with insurance-based investment and pension products that deliver adequate and sustainable returns can also have a broader impact on capital markets. Beyond the core objectives of delivering adequate, safe and sustainable returns, increased insurance and pension savings can supply the capital needed to finance the long-term growth of the real economy and its green and digital transitions, while ensuring diversification of investments across the continent. 

Increased choice and availability of products and product features can feel overwhelming for consumers. Hence, it is important to promote the development of simpler products informed by behavioural insights, focusing on how consumers perceive and understand product features. Establishing standards for product certification and labelling could ensure that certified products meet minimum criteria for simplicity, value, and protection, giving consumers confidence in their choices.  

Enhancing the governance of conduct risks by assigning clearer responsibilities on the boards of insurance undertakings, larger insurance intermediaries, and pension providers would help ensure that, throughout their lifetime, long-term products offer consumers value in line with their needs and objectives. 

We must also rethink the advice process. EIOPA’s work^[3]has highlighted deficiencies in the sale of insurance products. Incorporating new technologies such as AI, machine learning, and open finance can streamline this process. These tools allow insurance distributors to obtain information about customer needs indirectly, reducing the number of touchpoints during the pre-contractual phase and delivering a more fluid purchasing experience. 

To facilitate innovation while protecting consumers, robust and impactful conduct of business supervision is a must, avoiding “one-size fits-all” blanket measures. It is important to swiftly and decisively identify and address cases of misconduct, using appropriate enforcement measures, including in cross-border business activities. 

Increased cross-border activities by insurers and pension providers can deepen the Single Market by providing consumers with a wider range of investment opportunities for their savings and pensions. Citizens must trust that rules are enforced consistently throughout Europe. When national supervisors are unable or unwilling to act, the supervisory framework needs to allow for swift remedial actions at European level to address consumer detriment.
 

[1] Eurostat, Household statistics; Bureau of Economic Analysis

[2] Amongst respondents with an occupational pension scheme and/or a private/ personal pension product, 53% report feeling confident in their retirement. In comparison, only 38% of those who rely on a State pension report being confident in their retirement. 

[3] The latest EIOPA IDD application report refers to NCA mystery shopping exercises highlighting instances where the demands and needs of the customer have not been properly taken into account by the insurance distributor in the sales process.