EIOPA’s consumer heatmap highlights concerns over value-for-money, pensions gap and cross-selling

The European Insurance and Occupational Pensions Authority (EIOPA) has highlighted problems with value-for-money of some products, commission rates on insurance products cross-sold by banks, and increasing pension gaps, in its latest consumer heatmap published last week.

The pan-European insurance watchdog said in its 2024 Consumer Trends Report that poor value-for-money of some insurance products remained an issue for financial regulators across Europe.

Fewer than half (45%) of European consumers believe their insurance-based investment products (IBIPs) provided value-for-money, EIOPA said. This — along with a view that the products were overly complex — had prompted 15% of EU consumers not to renew their IBIP, it added.

Pensions gap

Without intervention, EIOPA said, EU citizens face an increasing risk of having insufficient income in retirement. The average state pension in the EU as a percentage of earnings at retirement is expected to fall from 46.2% in 2019 to 37.5% in 2070. Private provision will be needed to make up the shortfall in state provision but the public has “low awareness and engagement” with pension products, said EIOPA.

According to Eurobarometer data, 23% of EU citizens participate in an occupational pension scheme and 19% contribute to a personal pension product. Just 42% of EU citizens are confident they will have enough income to live comfortably in retirement, EIOPA said.

High commissions

The authority added that national competent authorities (NCAs) remain concerned about high commissions on, and the poor value of, insurance cross-sold alongside other financial products.

Sales commissions are a recurring concern for regulators. In the UK, excessive commissions on the sale of payment protection insurance (PPI) led to widespread mis-selling, and an eventual compensation bill for financial services firms of £38 billion. And last year, the Financial Conduct Authority (FCA) temporarily halted the sale of all guaranteed asset protection (GAP) insurance after finding commission rates of 70% being charged on the products, which were sold alongside car finance.

EIOPA’s data showed that commission was higher on insurance products cross-sold by banks than those distributed directly by insurers. The concern over high rates was exacerbated by the low value-for-money of many insurance products that are frequently cross-sold, it said.

Digitalisation and AI

EIOPA said the ongoing digitalisation of insurance and pension services was streamlining processes and enhancing consumer awareness, which was in turn facilitating greater uptake of products.

However, the regulator expressed concern that older and lower-income individuals could be excluded from financial products as the industry pushes ahead with digital service offerings. It said some 43% of EU consumers had expressed a preference for receiving information on their financial products face-to-face rather than online.

EIOPA was also concerned that if digitalisation led to overly standardised processes and a reduction in interactions with insurance intermediaries, consumers may turn to influencers, resulting in purchase of “less suitable or less adequate products”.  

Overall, EIOPA said artificial intelligence (AI) was expected to have a “positive transformative effect on insurance”, however, NCAs had reported cases of “poor AI-decision making” with “limited consideration” of an individual’s specific circumstances.