Life insurance development: results of public consultations
When selling life insurance policies, insurers shall inform their customers about the key risks inherent in the product they offer and main contractual conditions. These were the results of public consultations held on the Bank of Russia report, Proposals for the Development of Life Insurance, which was offered for discussion to the community and market participants in October 2017.
Discussants noted the need to disclose information on insurance risks and exclusions from the insurance contract, the cooling-off period, and the surrender value paid in case of an early termination of the insurance contract to customers. Moreover, customers must be made aware that the life insurance policy they buy will not be covered by the deposit insurance system.
As for credit insurance, information provided to customers shall be expanded to include information on the possibility of a partial premium payment in case of early credit repayment, and the influence of the insurance contract on credit conditions and the status of the intermediate bank.
Respondents proposed that investment insurance products (IIP) be marked with the ‘investment’ prefix on a mandatory basis. In this way, policy holders will see that the product to by purchased is an investment product and will therefore be able to distinguish between products offered by various segments in the life insurance market.
Survey participants supported the Bank of Russia’s initiative on the feasibility of unifying the requirements for the disclosure of information by insurers, other financial intermediaries and specifically by the management companies of unit investment funds in the basic standards for financial consumer protection.
Overall, market players approved the regulator’s proposal to introduce the institution of a financial ombudsman and unit-linked life insurance plan. They are absolutely positive that the operation of financial ombudsman shall be strictly regulated.
Discussants also expressed their opinions regarding the further development of requirements for the financial sustainability and solvency of life insurers and the elimination of barriers hampering the advancement of life insurance, including changes in the taxation system.
Members of the insurance community thought it was too early to introduce fiduciary responsibility for insurers. The Bank of Russia, in turn, is considering the chance of implementing this institution for life insurers based on the analysis of its operation in the collective investment market.
One of the most contentious subjects of the discussion was the issue of ranking consumers and the sale of IIPs corresponding to customer risk profile. This issue was not supported by the majority of those surveyed, who believed that it would complicate and hamper sales. However, some respondents thought that this approach seemed well-grounded given the low financial literacy of households.
The Bank of Russia will take into account the opinions of the professional community received during the discussion of the consultative report as it prepares proposals on the development of the national legislation on life insurance and appropriate regulatory acts.