Policyholder Information in Life Insurance in Austria

1
Policyholder Information in Life Insurance in
Austria
Peter Braumüller
2
Agenda

• General considerations
• Legal framework
• Supervisory approach
• Conclusions

3
General considerations

• Why is accurate policyholder information
  important, in particular in life
• insurance?
• Significant accumulation of funds over a long
  period of time (traditional life insurance)
• Long duration of contracts does not allow early
  testing of benefits
• Cancellation of contracts might be very
  disadvantageous to policyholders
• Products are becoming increasingly complex in
  structure and design
• Blurring borderlines between different types of
  products
• Large variety of risk sharing arrangements
• Lack of clarity which risks are borne by the
  policyholder
• High reliance on projections and future
  developments
• Inaccurate information could endanger a companys
  reputation or financial soundness e.g. in case of
  lawsuits

4
Agenda

• General considerations
• Legal framework
• Supervisory approach
• Conclusions

5
Legal requirements

• All kinds of insurance contracts prior to the
  contract
• Sec. 9a ISA / Art. 31, 43 of directive 92/49 EEC,
  
• Annex III of directive 2002/83/EC
• name, address of the head office, legal form of
  the insurance company
• law applicable
• supervisory authority
• term of the insurance contract
• method and duration of the premium payment
• conditions for revocation or cancellation

6
Legal requirements

• Life insurance contracts prior to the contract
• Sec. 18b para 1 ISA / Annex III of the directive
  2002/83/EC
• insurers benefits and available options
• conditions for terminating the insurance contract
• principles for the computation of profit
  participation
• surrender values and non-contributory insurance
  benefits
• information about investment funds in unit-linked
  life insurance
• information on the reference value in
  index-linked life insurance
• tax arrangement applicable to the insurance
  contract

7
Legal requirements

• Life insurance contracts during the term of the
  contract
• Sec. 18b para 2 ISA / Annex III of the directive
  2002/83/EC
• status of acquired profit participation
• value of the units allocated to the policyholder
  in unit-linked life insurance
• performance of the reference value in
  index-linked life insurance

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Legal requirements

• Index-linked and unit-linked life insurance
• Sec. 75 ISA
• experience/knowledge of security investment and
  financial circumstances of the policyholder
  (shall be documented in writing) investor
  profile
• all relevant information necessary to safeguard
  policyholders interests with regard to their
  investment risk
• indication that the performance of the past does
  not allow any reliable conclusions for the future
  development of a fund

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FMA Minimum Standards

• Traditional life insurance
• premium sum for the entire term of the insurance
  contract
• guaranteed interest rate
• surrender values, non-contributory benefits and
  premium sum for each year in tabular form
• information that preliminary termination may
  result in losses for the policyholder,
  particularly in the first few years
• maximum basis for the presentation of benefits is
  the interest bonus rate published in the last
  annual accounts
• range calculation
• stress the non-binding character

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FMA Minimum Standards

• Index-linked and unit-linked life insurance
• Investment policy
• composition of the fund
• website address of the investment fund management
  company
• performance of the fund/reference value in a
  chart format
• Surrender value
• information that preliminary termination may
  result in losses in particular in the first few
  years, in particular because of the acquisition
  costs
• maximum surrender discount

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FMA Minimum Standards

• Index-linked and unit-linked life insurance
  (ctd.)
• presentation of benefits on the basis of the
  policyholders individual circumstances using
  stipulated percentages amounting to 0, 3 and 6
• policyholders must be clearly advised that they
  bear the investment risk

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Recent amendments

• New regulations regarding surrender values
• Sec. 176 para 5, 6 of the Insurance Contract Act
• acquisition costs have to be allocated over five
  years
• in case of cancellation of the contract within
  the first five years, the intermediary has the
  right to keep only the respective part of the
  commission
• leads to higher surrender values
• agreements derogating from this provision are
  invalid

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Agenda

• General considerations
• Legal framework
• Supervisory approach
• Conclusions

14
Policyholder complaints

• FMA is dealing with policyholder complaints
• Around 200 complaints per year
• Around 100 complaints deal with problems in life
  insurance, frequently concerning
• Information on surrender values
• Information on (expected) profit participation
• Information about cancellation of the contract
• Information on the performance of the underlying
  fund
• Information on the amount effectively invested
  (transparency of costs)

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On-site inspections

• FMA is carrying out on-site inspections in
  insurance undertakings to check compliance with
  information duties according to legal
  requirements and FMA Minimum Standards
• On-site activities include the inspection of
• Material used for advertising and during the
  acquisition process
• Documents provided to the policyholder
• Actual implementation of investor profiles
• Contents of minutes of consultation

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Supervision of intermediaries

• FMA is in charge of supervising the
  intermediation of insurance through credit
  institutions.
• Other intermediaries are controlled by the
  Ministry of Economy and Labour and the local
  administrative bodies, but the FMA may demand
  information as well as carry out on-site
  inspections.
• About 60 of life insurance in Austria is sold
  through banks
• FMA stipulates the content of the minutes of
  consultation
• On-site inspections in banks as concerns
  insurance intermediation
• Cross-check with insurance companies concerned

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Topical issues

• Information about cancellation rights
• Minutes of consultation
• Intransparent clauses in General Conditions of
  Insurance
• Comprehensibility of contract clauses
• Necessary agreement according to the Data Privacy
  Law
• Comprehensible presentation of benefits
• Information that preliminary termination may
  result in losses in the first years
• Content of the yearly information on the acquired
  participation in profits
• Description of the guaranteed benefits and
  interest rate
• Extent of risk the policyholder has to bear
• Misleading advertisement

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Agenda

• General considerations
• Legal framework
• Supervisory approach
• Conclusions

19
Conclusions

• Policyholder shall receive relevant information
  prior to the conclusion of the contract
• Completeness of information vs comprehensibility
• over-information leads to more dependence on
  third-party advice
• Policyholder must be aware of who bears what type
  of risk
• Besides the content of policyholder information
  it is important how and when information is
  provided in practice
• Compliance with information duties should be
  monitored by the supervisor on a regular basis
• On-site inspections are an important tool to
  monitor compliance

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Policyholder Information in Life Insurance in
Austria
Dr. Peter Braumüller