EU watchdog to probe fund payments in unit-linked schemes

Added 7th July 2016

Europe’s insurance regulator has launched an EU-wide review into the market conduct of insurers offering unit-linked life insurance policies.

EU watchdog to probe fund payments in unit-linked schemes

The review, conducted by the European Insurance and Occupational Pensions Authority (Eiopa), will look into 60% of each national market and focus on potential problems in the sector, the organisation said this week.

One the main concerns the watchdog will look into is how payments by asset managers to insurers create a potential conflict of interest by influencing the investments on offer and how this affects policyholders.

“Concerns raised were that some life insurance undertakings were choosing underlying funds to offer on the basis of those which provided the highest remuneration to the insurance undertaking from asset managers,” said Eiopa.

Life companies generally earn higher fees on unit-linked funds than on guaranteed-return funds. Unit-linked life policies provide a combination of life insurance and investment, where insurers invest client premiums and pay out the capital plus investment returns when the policy matures.

Compared to standard funds, which guarantee a certain capital return and are usually invested in low-risk, low yield fixed income assets, unit-linked products state that the risks for the investment part are borne by the policyholder.

Eiopa’s review follows on from its consumer trends report, published last November, which found “significant growth” in unit-linked life insurance products in 2014 driven by the rock-bottom low interest rate environment.

Controversy

Unit-linked life products have been marred by a number of high-profile mis-selling scandals over the years.

The “Woekerpolis” scandal in the Netherlands found insurers guilty of profiteering by mis-selling up to seven million investment-linked policies, dating back to 1995 – many of which were sold on the basis of poor advice that failed to disclose the high fees these policies incurred.

In January last year, Hong Kong’s Insurance Authority (IA) banned commission clawback on Investment Linked Assurance Schemes (Ilas) after there were complaints that the products failed to protect consumers and the high initial fees were unfair.

The clawback, known as indemnity insurance, is where a life company pays commission to an intermediary based on the full value of the policy – which could run for 25 years. Despite the ban, life companies are still entitled to take back some or all of the commission if the policy is cancelled.

Meanwhile, the UK’s Financial Conduct Authority (FCA) published its own set of guidelines to govern the sector in October 2013, after identifying potential conflicts of interest with the unit-linked products.

FCA figures show over £900bn (€1.05bn, $1.16bn) is invested in the UK’s unit-linked funds, approximately 85% of which is pension savings – a proportion which is likely to increase dramtically in line with the take up of auto-enrolment according to the regulator.

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

Insurers invest Retail Investors in Toxic Funds via the back door

16 International insurers invested 1000's of retail investors using Investment Linked Insurance Schemes in Unregistered funds even using Intermediaries who were not registered and therefore supposedly illegal. The Isle of Man regulator, maintains Insurers only have to ensure on island intermediaries are registered and there is no requirement for funds to be registered and under go "Due Diligence". Despite signing up to IAIS principles in 2011. In the case of LM MPF 4500 expat investors were recommended the investment by unregistered Insurance and financial advises probably because they were paid 10% upfront by LM and a further 7% by the insurer for locking the unsuspecting investor into the Insurance Policy for 8 years. Over A$250M of the LM A$390M was processed by I of M Insurers, victims stand to loose >95%. The victims are still having to pay management fees on the original amount, just what were the fees for, it certainly was not "Due Diligence"? In November 2012 Ernst and Young issued a going concern warning on LM Sister Fund First Mortgage Income Fund frozen since March 2009, the unit price had been reduced to 59C, MPF had over A$300M in second mortgages on the assets that FMIF had approved.. MPF had been using new investors cash to pay FMIF operating expenses and interest since 2008. MPF was supposedly Low risk and suitable for Retail Investment says 12 QROP and SIPP providers. listed on the LM 31st Jan 2013 Approved Platform and Bond Providers List. Supposedly across the EU and much of the rest of the world Funds have to be registered before they can be sold to retail investors. Insurers as professional investors can buy "unregistered only for professional funds", list them on their supposedly approved Unit Linked Insurance schemes, process them for Retail Investors as they have signed a disclaimer. Insurance "Utmost Good Faith"???? LM Is the tip of a very big Iceberg.

Posted by: Pavlos, 05 Aug 2016

About Author

Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.

Features

US equities: If you can’t beat them, join them

US equities: If you can’t beat them, join them...

European investors have been dismissing US equities as too expensive for a couple of years. But as the S&P 500 continues to outperform other equity markets, appetite for the asset class is again on the...

Directories

Ashburton International
Ashburton International

Ashburton Investments is a new generation investment...

Tweets

Events

Future Advisory Forum Hong Kong 2016
Future Advisory Forum Hong Kong 2016

Tuesday 4th October 2016

Hong Kong

Future Advisory Forum Singapore 2016
Future Advisory Forum Singapore 2016

Thursday 6th October 2016

Singapore

Offshore Bond Workshop Manchester 2016
Offshore Bond Workshop Manchester 2016

12th October 2016
The Midland, Manchester

Future Advisory Forum Cape Town 2016
Future Advisory Forum Cape Town 2016

Tuesday 18th October
The Vineyard, Cape Town

Investment Strategy

Sponsored Content

OTHER STORIES FROM LAST WORD...