2018 heralds significant advances with regard to the legal information obligations for consumers. Providers of insurance products and insurance-based investment products as well as so-called “packaged retail investment products” are required to make standardised, easy to understand and comparable information documents available for every product: the Key Information Document (KID) pursuant to the PRIIPs Regulation[1] and the “Insurance Product Information Document” (IPID) and the “Life Insurance Product Information Document” (LIPID) pursuant to the Insurance Distribution Directive[2].
“As a result of insurance and investment products being distributed throughout Europe the range of products available in the financial market for end-consumers is becoming ever more diverse and different, while the boundaries between classical products and sectors are becoming ever more blurred. It has become very difficult to compare various products”, remarked the FMA’s Executive Board members, Helmut Ettl and Klaus Kumpfmüller: “These new pan-european and cross-sector standardised information documents have been tailored to the needs of consumers in terms of their language, deisgn and scope, and are intended to allow consumers to make informed decisions.”
KID – Key information documents pursuant to the PRIIPs Regulation
KIDs must be made available to consumers from 01.01.2018. The PRIIPs Regulation defines a common standard for the format and content of information for products that are subject to an investment risk, and which are targeted towards end-consumers and retail investors; and this regardless of whether the product is an investment product, a fund or an insurance-based investment product.
Generally this covers:
- structured financial products, such as warrants that are packaged up into securities or banking products,
- financial products whose value is derived from benchmarks such as shares or exchange rates (derivatives),
- closed-end and open-end investment funds,
- insurance products with the characteristics of an investment (this includes insurance products, that have a value at maturity or a surrender value, which is either partially or fully, directly or indirectly, exposed to market volatilities, such as, for example, classical and fund-linked life insurance plans or hybrid products), as well as
- instruments that are issued by special purpose entities.
Consequently comparability on a cross-sector basis and across products has been made possible. The scope of application is also deliberately broad in order to take into account the heterogeneity of financial products in EU Member States. Furthermore, this prevents providers from being able to bypass the Regulation, by choosing a specific legal form, designation or intended purpose for the financial product.
Significant information for the clients, such as the risks or costs are displayed in the form of aggregated indicators. The total risk indicator provides information about the risks that the client enters into. This is presented on a scale from one to seven, with 1 being the lowest risk, and 7 the highest risk. The breakdown of costs is to be presented in a table in the KID. Both the total costs as well as their effect on returns (Reduction in Yield – RIY) are required to be stated on the Key Information Document.
IPID – Insurance Product Information Document pursuant to the IDD
IPIDs (for non-life insurance products) are required to be made available to consumers from 23.02.2018, unless their introduction is not delayed until 01.10.2018 as proposed by the European Commission. “Insurance Product Information Documents” are required to fit on two pages of A4. It should include, among other items, a summary of the principle insured risks and those risks that are excluded from coverage, the sum insured and the geographical scope, thereby making it easier to compare products. To ensure easy legibility a font size has been prescribed of at least 1.2mm.
LIPIDs – Information Document for Risk-based Life Insurance Products
In order to also be able to compare products where the hedging of risk, rather than investment purposes, is of premier importance (e.g. term life insurance), more easily with one another, in the future there is also intended to be a standardised information document for risk-based life insurance products. According to the draft of the Insurance Distribution Act Amending Act 2017 (Versicherungsvertriebsrechts-Änderungsgesetz 2017), which transposes the IDD into national law, for risk-based life insurance policies a LIPID (Life Insurance Product Information Document) is planned. The FMA should receive the power to issue regulations, in order to be able to prescribe a standardised format for the presentation of the information document.
Enquiries should be addressed to:
Tiemon Kiesenhofer, MBA
+43/(0)1/24959-6010
+43/(0)676/882 49 610
[1] Regulation (EU) 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)
[2] Directive (EU) 2016/97 on Insurance Distribution (IDD)