Bank of Russia reveals bad practices employed by insurers when selling complex investment products
Counter to the regulator’s recommendations, some insurers continue to actively sell complex insurance products with an investment component, without checking clients’ level of knowledge and understanding of the specifics and risks of such instruments.
The Bank of Russia received these data based on the findings of monitoring the implementation by insurance companies of the regulator's recommendations to limit the sale of insurance products with an investment component. Insurers are specifically advised to check the level of clients’ knowledge using special criteria and also to document the conducted check and its results.
It turned out, however, that criteria employed by many companies are rather formal; they have a low threshold for passing and can be misinterpreted. The criteria are often constructed in such a way that almost any consumer can be considered an expert of complex investment products. Sometimes, employees of insurance companies fill in replies to verification forms for consumers or execute a contract for an investment product, despite the negative result of checking the client's level of knowledge.
The Bank of Russia also revealed positive practices. For example, when selling complex products with an investment component, many insurance companies prefer clients who have already concluded such agreements in the past, make regular transactions with securities or satisfy the criteria of a qualified investor.
The regulator sees it important for the seller of complex investment products to make sure that the buyer makes an informed choice when purchasing them, is aware of the risks, and is ready to bear possible losses. For this purpose, the Bank of Russia recommends that insurers, within three days after entering into the contract (and prior to the expiry of the cooling period), call the holders of investment insurance policies and find out if they have filled in the verification form independently.
Once it is identified that the the consumer was not even aware of signing an investment insurance contract, he or she should have a chance to terminate it, whereas the employee who has violated the client’s check should be subject to appropriate measures.