Response to joint Discussion Paper on Key Information Documents (KIDs)
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It is not clear to Assuralia whether the key questions themselves will be taken up in the PRIIPs-document or are just a means to determine the content of the section of the PRIIPs-document on risks. With regards to the key questions Assuralia would also like to point out that too negative wording will scare a consumer out of even considering investing in a PRIIP. As the headings set down in the Regulation itself have already a rather negative connotation, we would like to ask that sufficient attention is dedicated to the neutral presentation of the information underneath each heading.
Furthermore we would like to emphasize that the limitation of risk of potential loss through a protection mechanism or a guarantee should be considered differently and this difference should be clear for the consumer. An insurer proposing a product with a guaranteed interest rate needs to fulfil strict solvency requirements, cfr. Solvency II. A protection mechanism in a structured product is only as solid as the elements used to build this protection mechanism. Distributors of such structured products do not have to meet the same stringent solvency requirements.
NOTE: The text attached to the consultation form contains additional footnotes.
The definitions put forward in the discussion paper seem to describe the different risks correctly, although the impact of inflation on the value of the PRIIP should not be considered. The impact of inflation is not a differentiating element for the great majority of PRIIPs: almost everything is subject to the same level of inflation, even liquid assets held by a consumer. It is also very difficult to predict its evolution and thus take this risk correctly into account.
NOTE: The text attached to the consultation form contains additional footnotes.
Our answer to this question is tightly linked to our answer to questions 5 and 12: the goal is to provide the consumer with a simple comparison basis for the risks encompassed within different PRIIPs. This comparison basis does not need to be very sophisticated, but should result in a balanced outcome that is readily understood by the consumer. According to the Belgian insurance sector a good example of a relatively simple, but balanced system is the Belgian risk indicator. This indicator gives a balanced illustration of all PRIIPs by presenting products with a guaranteed interest rate (such as guaranteed life insurance PRIIPs) as products with a lower risk than products whose return depends on the return of underlying investments (such as unit-linked life insurance and UCITs), that in turn present a lower risk than derivatives. Introducing new quantitative measures based on probability calculations will add complexity without significantly enhancing the quality of the outcome. More importantly, the average consumer will probably not be able to assess the value of such stochastic models and the true meaning of their results.
NOTE: The text attached to the consultation form contains additional footnotes.
Article 8 (3) (g) of the Regulation imposes information on early redemption costs under the section ‘How long should I hold it and can I take money out early?’. Any fees or penalties applicable when disinvesting before maturity should be described generically in the section ‘How long should I hold it and can I take money out early?’ with a reference to the section on costs for the numerical data.
NOTE: The text attached to the consultation form contains additional footnotes.
It is likely that consumers will not correctly grasp the meaning of probabilistic scenarios and will focus on the products with the most positive expected returns, ignoring the probability of the depicted scenarios (including the most negative returns). This may lead to disappointment of the consumer.
Furthermore, it could lead to reputational damage for the manufacturer when the most probable expected return is not being realized, as consumers will not understand why and will not accept that this return is not being realized.
It is more straightforward to require from the manufacturer to present different scenarios without their likelihood of occurrence while making the consumer conscious of the fact that there is no probability attached to the realisation of the illustrated returns.
It should also be noted that developing solid probabilistic models as a basis for the different kind of PRIIPs will take a serious amount of time. At this moment there is no consensus in the market on the ideal type of model for performance scenarios. This ideal model would not only have to be adapted to a continuously changing market environment, it should also be able to take into account the different possible situations that could produce themselves in the future and it should be readily understood by retail consumers. Developing one single model for all PRIIPs will also be a serious challenge. Different PRIIPs require different elements to be taken into account. As stated above the limitation of risk of potential loss through a protection mechanism or a guarantee should be considered differently and this difference should be clear for the consumer. For long term products and open-ended products questions could also rise as to the validity of a performance scenario created at a specific moment in time using a fixed time horizon. Furthermore, questions rise as to what hypotheses to use and which probabilities to show to a consumer:
the hypotheses will have to differ according to the type of PRIIP and should be set at the national level if they are to be meaningful for a consumer (see our answer to questions 7 and 9 for further explanation);
if only a limited number of probabilities is shown, the information will be incomplete, but easier to understand for a consumer than if all the probabilities are shown, which would make the information complete, but very complex to comprehend for a consumer.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
If performance scenarios are to be given net of costs the following issues should be taken into account:
- insurance products often include other benefits, such as insurance protection, in parallel to the investment performance. The premium for an insurance benefit cannot be regarded as a cost of the investment. It is a price consumers pay for a service, notably a certain risk coverage;
- it is important to acknowledge that the final costs for an insurance-based investment product completely depend on the specific options each consumer chooses and how long the contract will exist. This last element will be very difficult to forecast if the contract only pays out in case of the death of the insured or when the person that took out the insurance decides to surrender the contract. Imposing performance scenario net of cost will therefore at least require that assumptions are set for the different PRIIPs-categories regarding the investment- and other options a consumer can choose and the duration of the contract. It seems unfeasible to realize this at a European level due to the fact that:
• not all PRIIPs are harmonized at a European level;
• consumer behaviour differs from one country to another.
NOTE: The text attached to the consultation form contains additional footnotes.
This would also be in line with art. 185 of Solvency II, that states that where, in connection with an offer for or conclusion of a life insurance contract, the insurer provides figures relating to the amount of potential payments above and beyond the contractually agreed payments, the insurer shall provide the policy holder with a specimen calculation whereby the potential maturity payment is set out applying the basis for the premium calculation using three different rates of interest.
Using three scenarios would also be in line with other legislation for products that fall under the PRIIPs-regulation. Structured UCITs have to show at least three scenarios of the UCITS’ potential performance. Appropriate scenarios have to be chosen to show the circumstances in which the formula may generate a low, a medium or a high return, including, where applicable, a negative return for the investor.
NOTE: The text attached to the consultation form contains additional footnotes.
One visual element of the risks would be most beneficial to consumers. This would aid comparison amongst PRIIPs.
This summary risk indicator:
- should be one depiction that makes it easy to compare the risks of PRIIPs for consumers;
- has to be balanced to allow a clear and logical categorisation of the different products;
- should be neutral as far as design and colours are concerned to avoid any negative visual connotations linked to the risk categories;
- should make clear that lower risk entails potentially lower reward and that higher risk entails potentially higher rewards, such as is foreseen for the UCITs SRRI;
- could for certain specific cases be accompanied by a narrative warning, cf. the liquidity warning accompanying the Belgian risk label.
The figure used to illustrate the UCITs SRRI presents all the above characteristics and would in addition allow for comparability with UCITS. However, though the methodology behind the SRRI can be integrated in the methodology for a summary risk indicator for PRIIPs, it cannot be used as such, as it does not fit all kinds of PRIIPs (such as guaranteed life insurance PRIIPs).
The different risks included in the risk indicator should not be supplemented by a further explanation of each risk. The goal is to aid the consumers in comparing risks across products. This can easily be done through a single risk indicator, but not through a narrative description of the risks. Moreover, the limited number of pages don’t allow for an extensive description of risks. Only risks that cannot be aggregated could be mentioned in a narrative way in association with the risk label, such as is done for liquidity risk in the Belgian risk label.
Disadvantages of other presentations of a summary risk indicator:
Compared to the figure illustrating the UCITs SRRI almost all the other visual elements included in the discussion paper on p. 37 to 39 have as a disadvantage that they represent risks in a rather negative, as opposed to a neutral way.
The multiple visual elements for risk and the table rating a product against a benchmark for different types of risk are very difficult to understand for consumers and thus difficult to use as a basis for comparison between different PRIIPs.
NOTE: The text attached to the consultation form contains additional footnotes.
However, contrary to the two examples in the discussion document on p. 43 the graph should illustrate possible performances at fixed moments in time, without giving the impression that it shows a continuous evolution over time.
Similarly to the summary risk indicator, it is important to ensure that the presentation of the performance scenarios remain neutral as far as the design, the colours and any terms used to avoid any negative visual connotations or to avoid giving an impression as to the likelihood of each scenario.
Assuralia proposes a visual element such as the graph illustrated in the text attached to the consultation form.
NOTE: The text attached to the consultation form contains additional footnotes.
In addition, it seems pertinent to reiterate here that the terms and wordings of the questions introduced by the PRIIPs Regulation for the headings of the KID already carry some negative connotations. We ask the Joint Committee to be cautious to ensure that the rest of the structure and presentation of the KID do not lead to an overly negative document.
The key questions also raise certain issues, such as the impossibility to obtain a complete comparability of the costs of different PRIIPs. A further description of these issues can be found under question 16.
NOTE: The text attached to the consultation form contains additional footnotes.
As already mentioned, insurance products often include other benefits, such as insurance protection, in parallel to the investment performance. In this context it is important to ensure that the premium for the additional and parallel benefits for such insurance-based investment products is not considered to be a cost. As such, the costs related to the biometric risks should not be included in this table.
A consumer cannot simply compare the final investment return of a product that does not provide an insurance benefit, with the final investment return of an insurance product that does provide such a benefit. When buying the insurance product the consumer will get an added service that has its own price, that is to say the premium, that cannot simply be presented as a cost that reduces his initial investment. If a retail consumer is to be able to compare the investment return of the insurance PRIIP versus that of another PRIIP the initial investment should not include the premium for the insurance benefit, but neither should this premium be presented as a cost that impacts the investment return of this product.
NOTE: The text attached to the consultation form contains additional footnotes.
It is of the utmost importance to correctly subdivide the different PRIIPs in categories of similar products for which the same rules on cost disclosure can be set. This will be the main challenge as it seems impossible to set exactly the same rules for cost disclosure amongst all kinds of PRIIPs. Even within a certain group of PRIIPs cost structures may vary, for example open-ended unit-linked insurance products versus structured unit-linked insurance products. It then will be necessary to determine per category of PRIIPs the assumptions to be used regarding cost disclosure.
Determining these assumptions will also be a serious challenge. At the pre-contractual stage, when the KID is produced by the manufacturer, the latter would typically not have any information about the amount the retail investor will invest, nor what will be his investment horizon or the investment options the retail investor will choose. The KID should in theory provide useful and relevant information for all investors, regardless of whether they invest 1000€ or 100 000€, for 1 or 10 years, in 1 or more underlying funds, change the underlying fund during the life time, … . This is very difficult as costs may vary depending on the initial investment, on the options chosen or activated during the lifetime of the contract and even on the distribution channel through which the consumer concludes a contract. Some products may also have a cost structure where some or all of the costs will proportionally decrease when the amount invested increases, or no longer apply if the investment is held for a certain amount of time. Moreover, in unit-linked life insurance products there are costs both at the insurance and the fund level. These would need to be aggregated.
For similar reasons it is very difficult to give both monetary amounts and percentages of all future costs without setting specific assumptions.
Insurance products often include other benefits, such as insurance protection, aside from the investment performance. In this context it is important to ensure that the premium for these insurance benefits is not considered as a cost.
The assumptions or certain details of the assumptions might even have to be set at the national level as:
- not all PRIIPs are harmonised across the EU market;
- consumer behaviour differs from member state to member state.
Cost presentation:
We propose to disclose the different types of costs according to the same format as is being used for UCITs. In the UCITs document all costs are aggregated and presented as either one-off costs, where you can distinguish entry and exit costs, or ongoing costs.
If the Joint Committee does decide that insurance premiums have to be presented as a cost it should at least be possible to clarify the cost presentation by stating that these insurance premiums are used to finance insurance benefits, such as a death benefit or an additional cover against disability and therefore do not form part of the invested amount.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
Therefore, in order to use a RIY for insurance PRIIPs several hypotheses have to be set regarding at least the following elements:
- number of investments (single or multiple investments, consecutive or other);
- expected total invested amount;
- expected duration of the investment and expected holding period;
- discount rate;
- expected return on investment.
Changing one hypothesis can have an enormous impact on the RIY. One can thus question the value of such a RIY for a consumer. Moreover, since some of the elements will be the object of the individual consumer choice, any RIY will almost by definition lead to confusion and potentially misleading information for the consumer. This will not lead to a clear transparency of costs.
Assuralia would like to underline that, if the Joint Committee nevertheless would impose a RIY, the hypotheses have to be set at the national level and for each category of PRIIPs since:
- not all PRIIPs are harmonised across the EU market;
- consumer behaviour differs from member state to member state;
- premiums for insurance benefits are not to be regarded as costs.
NOTE: The text attached to the consultation form contains additional footnotes.
It is also not clear what in this context would be the implicit and explicit growth rate for the different types of PRIIPs.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
The Belgian risk label uses the following elements to determine the different risk classes of different PRIIPs:
- qualitative measures:
o Solvency of the manufacturer or issuer of the product;
o Solvency of the member state behind a guarantee scheme;
o Total or partial pay-back of the initial investment;
o (Investment in) derivatives (>50%);
o Investment in eligible assets for funds;
o euro or foreign currency;
o term of the product ( or >10 years);
- quantitative measures:
o Volatility of the underlying fund ( or > SRRI 4).
These measures are considered as follows:
Products in euro are seen as less risky than products in a foreign currency. A product that also provides for a total pay-back of the initial investment will be seen as less risky than a (similar) product that does not provide for a total pay-back. The same goes for products with holding period of 10 years or less, except when they are protected by a guarantee scheme. If the initial investment is protected by a guarantee scheme the product is seen as very low risk regardless of its holding period. The credit worthiness of the manufacturer or issuer of the PRIIP, or the government behind a guarantee scheme, will be an additional differentiating factor between the different lower risk classes.
The medium to higher risk classes contain the products that do not fulfill the conditions to be considered a lower risk product. A product that has an SRRI of 4 or less will be considered medium risk, regardless of whether this product is a UCIT or a unit-linked life insurance that invests in the eligible assets for UCITs. A product that invests for more than 50 percent in derivatives will always be considered to fall within the highest risk class.
Certain risks are difficult to aggregate, but could be the subject of a narrative warning associated with the aggregated risk indicator. This is for instance the case for liquidity risk in the Belgian risk indicator.
The advantage of the methodology behind the Belgian risk label is that it is simple and easily applicable to all PRIIPs on the EU market, requiring at the most only minor adaptations, such as adding or deleting a criterion.
NOTE: The text attached to the consultation form contains additional footnotes.
Furthermore, disclosing costs to a consumer in such a detail as in table 12 would have no added value. It would only confuse a consumer and hinder his ability to compare costs amongst PRIIPs. We refer to our answer to question 16 where we propose to disclose costs under the same format as UCITs do.
NOTE: The text attached to the consultation form contains additional footnotes.
As is foreseen by the Regulation itself the date at which the KID was developed should be mentioned.
NOTE: The text attached to the consultation form contains additional footnotes.
Assuralia understands the criteria to be the same criteria as those applicable in Belgium under the so called “moratorium on particularly complex structured products”. Moreover, the criterion regarding the underlying assets not commonly invested in by retail investors seems to designate the same assets as the assets that by Belgian law manufacturers can no longer propose a retail consumer to invest in.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
For guaranteed life insurance products and capital redemption products this means that the description should mention the interest rate that is guaranteed and the possibility to benefit from profit sharing. For unit-linked life insurance the description should be similar to the description that has to be given for a UCIT.
We would also like to point out that the Regulation only demands to refer to specific environmental or social objectives targeted where applicable. Where no such objectives are targeted one can remain silent on this topic. It is important to keep in mind that the document must remain concise as it is limited to 3 pages. Any irrelevant information should therefore be avoided.
NOTE: The text attached to the consultation form contains additional footnotes.
Describing in too much detail the ability of the targeted type of consumer to bear investment loss will interfere with the distributor’s ability (and obligation) to take into account the whole investment portfolio of the consumer. For instance, a consumer that can easily bear investment loss, might be advised to invest a small portion of his money in a more secure product to balance his other investments in more risky products, or vice versa.
The description should therefore be axed and limited to the overall aim of the product, for example capital accumulation, the product’s essential characteristics and the optimal or minimum duration of the investment. In case of an insurance-PRIIP it would also be important to explain the possibility for the retail consumer to use the product for succession planning and inheritance tax planning. The PRIIPs-document is aimed at providing the consumer with objective product information and should not be seen by consumers as investment advice.
It is particularly important for this section to:
- align the rules set in the RTS to any other regulatory initiatives, such as the ESA’s work on product oversight and governance and the MiFID level II-rules;
- avoid duplication with any other section of the PRIIPs-document.
NOTE: The text attached to the consultation form contains additional footnotes.
These benefits should be described so that the consumer understands the full extent of these benefits. As the PRIIPs-document has to remain concise it is very important to have the possibility to refer to other precontractual and contractual documents in which these benefits are described in complete detail.
Furthermore, insurance products distinguish themselves from other PRIIPs regarding the beneficiary of the investment. Insurers should be able to describe this aspect of the insurance PRIIP in detail as this is crucial information for a consumer. The fact that a beneficiary other than the consumer initially investing in the product can be designated, will influence the way consumers use insurance PRIIPs in comparison too other PRIIPs.
It should also be possible to inform the retail consumers that they enjoy a preferred creditor status when investing in an insurance PRIIP as opposed to any other kind of PRIIP.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
Any fees or penalties applicable when disinvesting before maturity should be described only in a generic manner in this section of the document with a reference to the section on costs for the numeric data.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
It should also be possible to include the contact details of the distributor or the advisor that offers the PRIIP under this section to allow the consumer to contact them to obtain the additional information by other means, such as on paper.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
Giving the retail consumer clear information on all aspects of these products (both the insurance information and the information on all the investment choices) is not possible on 3 A4’s, unless the manufacturer can limit himself to giving generic information and can refer to other documents for further detailed pre-contractual information.
NOTE: The text attached to the consultation form contains additional footnotes.
This would allow the consumer to understand that the concrete information depends on the investment option(s) he chooses. It would also still allow him to compare the product to other PRIIPs that give a specific risk reward and cost information, which would not be possible if these sections were to include only a narrative description.
Adding indicative examples could create confusion as the consumer might get the impression that these examples show all the different investment options available or are representative of all these investment options.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
NOTE: The text attached to the consultation form contains additional footnotes.
It is important to inform the consumer of the different payment options he can choose from, but it doesn’t seem necessary to illustrate the impact of all the different payment options in the PRIIPs-document. This would limit the use of the PRIIPs-document for comparison purposes and would lengthen it considerably.
Having to make different PRIIPs-documents for each of the payment options the same insurance PRIIP offers does not aid consumer understanding either. The consumer might not understand that all documents describe exactly the same insurance PRIIP, but with another payment option activated. This methodology might also prove to be rather costly for a manufacturer.
One should also not forget the role of the advisor or distributor of the PRIIP who can take into account the personal preferences of each consumer when proposing a PRIIP.
NOTE: The text attached to the consultation form contains additional footnotes.
2: Do you agree with the description of the consumer´s perspective on risk expressed in the Key Questions?
Assuralia recognises the relevance of the key questions for the description of the consumer’s perspective on risk, but highlights that these key questions should lead to a balanced presentation of the risks associated with the different PRIIPs. It should also leave room to highlight product-specific characteristics.It is not clear to Assuralia whether the key questions themselves will be taken up in the PRIIPs-document or are just a means to determine the content of the section of the PRIIPs-document on risks. With regards to the key questions Assuralia would also like to point out that too negative wording will scare a consumer out of even considering investing in a PRIIP. As the headings set down in the Regulation itself have already a rather negative connotation, we would like to ask that sufficient attention is dedicated to the neutral presentation of the information underneath each heading.
Furthermore we would like to emphasize that the limitation of risk of potential loss through a protection mechanism or a guarantee should be considered differently and this difference should be clear for the consumer. An insurer proposing a product with a guaranteed interest rate needs to fulfil strict solvency requirements, cfr. Solvency II. A protection mechanism in a structured product is only as solid as the elements used to build this protection mechanism. Distributors of such structured products do not have to meet the same stringent solvency requirements.
NOTE: The text attached to the consultation form contains additional footnotes.
3: Do your agree that market, credit and liquidity risk are the main risks for PRIIPs? Do you agree with the definitions the ESA’s propose for these?
Assuralia agrees that market, credit and liquidity risk are the main risks for PRIIPs. However, the extent to which a certain risk is relevant for a PRIIP depends on the kind of PRIIP concerned. All risks should thus be taken into account, but their relevance should weigh differently for different kind of PRIIPs (and in some cases be negligible). For example in our view liquidity risk is less relevant for insurance products that have a target group of long term investors, whilst it can be of great significance for PRIIPs that target short or medium term investors that are looking for a high level of flexibility. Market risk on the other hand will be less relevant for an insurance contract with a guaranteed interest rate than for a unit-linked life insurance or a UCIT.The definitions put forward in the discussion paper seem to describe the different risks correctly, although the impact of inflation on the value of the PRIIP should not be considered. The impact of inflation is not a differentiating element for the great majority of PRIIPs: almost everything is subject to the same level of inflation, even liquid assets held by a consumer. It is also very difficult to predict its evolution and thus take this risk correctly into account.
NOTE: The text attached to the consultation form contains additional footnotes.
4: Do you have a view on the most appropriate measure(s) or combinations of these to be used to evaluate each type of risk? Do you consider some risk measures not appropriate in the PRIIPs context? Why? Please take into account access to data.
The measures taken into account should mostly be limited to qualitative measures and the quantitative measures already in use in the market. Introducing new complex quantitative measures will have little or no added value for the evaluation and presentation of each type of risk. A similar outcome can be obtained using only existing qualitative and quantitative measures such as the SRRI. If new quantitative measures such as ‘credit value at risk’ should be introduced the assumptions that have to be used to take them into account should be set for the whole EU-market. Adding quantitative measures for liquidity risk that are valid for all PRIIPs and take into account their different time horizon and target group seems very difficult. This risk should perhaps be expressed by a narrative warning accompanying the risk level. A factor that could be taken into account when evaluating credit risk could be the fact that a retail consumers enjoys a preferred creditor status when investing in an insurance PRIIP as opposed to any other kind of PRIIP.Our answer to this question is tightly linked to our answer to questions 5 and 12: the goal is to provide the consumer with a simple comparison basis for the risks encompassed within different PRIIPs. This comparison basis does not need to be very sophisticated, but should result in a balanced outcome that is readily understood by the consumer. According to the Belgian insurance sector a good example of a relatively simple, but balanced system is the Belgian risk indicator. This indicator gives a balanced illustration of all PRIIPs by presenting products with a guaranteed interest rate (such as guaranteed life insurance PRIIPs) as products with a lower risk than products whose return depends on the return of underlying investments (such as unit-linked life insurance and UCITs), that in turn present a lower risk than derivatives. Introducing new quantitative measures based on probability calculations will add complexity without significantly enhancing the quality of the outcome. More importantly, the average consumer will probably not be able to assess the value of such stochastic models and the true meaning of their results.
NOTE: The text attached to the consultation form contains additional footnotes.
5: How do you think market, credit and liquidity risk could be integrated? If you believe they cannot be integrated, what should be shown on each in the KID?
As contingent costs only apply in certain specific situations they should not be included in the total aggregated costs, but they should be described separately in the section on costs.Article 8 (3) (g) of the Regulation imposes information on early redemption costs under the section ‘How long should I hold it and can I take money out early?’. Any fees or penalties applicable when disinvesting before maturity should be described generically in the section ‘How long should I hold it and can I take money out early?’ with a reference to the section on costs for the numerical data.
NOTE: The text attached to the consultation form contains additional footnotes.
6: Do you think that performance scenarios should include or be based on probabilistic modelling, or instead show possible outcomes relevant for the payouts feasible under the PRIIP but without any implications as to their likelihood?
Performance scenario’s should show possible outcomes relevant for the pay-out without any implications as to their likelihood. Using probabilistic modelling will add complexity without significantly enhancing the quality of the outcome. More importantly, it is unlikely that consumers can correctly interpret likelihoods (probability). We therefore prefer giving different possible outcomes without any indications as to their likelihood so as not to create false expectations with consumers. This is also in line with the legislation for UCITs, where the regulator has opted for the use of deterministic performance scenarios for structured UCITs.It is likely that consumers will not correctly grasp the meaning of probabilistic scenarios and will focus on the products with the most positive expected returns, ignoring the probability of the depicted scenarios (including the most negative returns). This may lead to disappointment of the consumer.
Furthermore, it could lead to reputational damage for the manufacturer when the most probable expected return is not being realized, as consumers will not understand why and will not accept that this return is not being realized.
It is more straightforward to require from the manufacturer to present different scenarios without their likelihood of occurrence while making the consumer conscious of the fact that there is no probability attached to the realisation of the illustrated returns.
It should also be noted that developing solid probabilistic models as a basis for the different kind of PRIIPs will take a serious amount of time. At this moment there is no consensus in the market on the ideal type of model for performance scenarios. This ideal model would not only have to be adapted to a continuously changing market environment, it should also be able to take into account the different possible situations that could produce themselves in the future and it should be readily understood by retail consumers. Developing one single model for all PRIIPs will also be a serious challenge. Different PRIIPs require different elements to be taken into account. As stated above the limitation of risk of potential loss through a protection mechanism or a guarantee should be considered differently and this difference should be clear for the consumer. For long term products and open-ended products questions could also rise as to the validity of a performance scenario created at a specific moment in time using a fixed time horizon. Furthermore, questions rise as to what hypotheses to use and which probabilities to show to a consumer:
the hypotheses will have to differ according to the type of PRIIP and should be set at the national level if they are to be meaningful for a consumer (see our answer to questions 7 and 9 for further explanation);
if only a limited number of probabilities is shown, the information will be incomplete, but easier to understand for a consumer than if all the probabilities are shown, which would make the information complete, but very complex to comprehend for a consumer.
NOTE: The text attached to the consultation form contains additional footnotes.
7: How would you ensure a consistent approach across both firms and products were a modelling approach to be adopted?
Assuralia is not in favour of probabilistic models. However, we subscribe the importance of a consistent approach across firms and products (without forgetting to take into account the particularities of the different PRIIPs). We would therefore suggest to develop and lay down the parameters to be used for the presentation of possible outcomes at the national level for the different kinds of PRIIP. The development at national level is necessary because not all PRIIPs are harmonised at the EU level and there is no such thing as a standard EU consumer. Investment habits are not the same in all EU-countries.NOTE: The text attached to the consultation form contains additional footnotes.
8: What time frames do you think would be appropriate for the performance scenarios?
Any performance scenario should be as relevant as possible for the consumer. This could be achieved by setting the time frame in line with the target group of consumers and the recommended holding period of the PRIIP.NOTE: The text attached to the consultation form contains additional footnotes.
9: Do you think that performance scenarios should include absolute figures, monetary amounts or percentages or a combination of these?
We prefer that performance scenarios include percentages, notably since percentages facilitate comparability and are easy to apply to the actual sum invested by the consumer, which makes percentages the most relevant information for consumers regarding future performance of a PRIIP.NOTE: The text attached to the consultation form contains additional footnotes.
10: Are you aware of any practical issues that might arise with performance scenarios presented net of costs?
It does not make sense to illustrate both performance scenarios net of costs and the compound effect of the total costs on the investment as they appear to convey the same information to a retail consumer. Performance scenarios should describe how a product performs under certain market conditions, regardless of what this means for a certain consumer in terms of costs. These costs and their effect on the investment return are already explained in a separate section on costs. This is analogous to the procedure foreseen in the MiFID Implementing Directive that allows firms to inform the consumer of the gross performance of a product in combination with the disclosure of the effects of commissions, fees and other charges.If performance scenarios are to be given net of costs the following issues should be taken into account:
- insurance products often include other benefits, such as insurance protection, in parallel to the investment performance. The premium for an insurance benefit cannot be regarded as a cost of the investment. It is a price consumers pay for a service, notably a certain risk coverage;
- it is important to acknowledge that the final costs for an insurance-based investment product completely depend on the specific options each consumer chooses and how long the contract will exist. This last element will be very difficult to forecast if the contract only pays out in case of the death of the insured or when the person that took out the insurance decides to surrender the contract. Imposing performance scenario net of cost will therefore at least require that assumptions are set for the different PRIIPs-categories regarding the investment- and other options a consumer can choose and the duration of the contract. It seems unfeasible to realize this at a European level due to the fact that:
• not all PRIIPs are harmonized at a European level;
• consumer behaviour differs from one country to another.
NOTE: The text attached to the consultation form contains additional footnotes.
11: Do you have any preferences in terms of the number or range of scenarios presented? Please explain.
To ensure that the investor is not overburdened with information and to ensure that the PRIIPs-manufacturer can respect the 3 page-limit of the Regulation , the Regulatory Technical Standards should not require the presentation of more than three scenarios in the KID.This would also be in line with art. 185 of Solvency II, that states that where, in connection with an offer for or conclusion of a life insurance contract, the insurer provides figures relating to the amount of potential payments above and beyond the contractually agreed payments, the insurer shall provide the policy holder with a specimen calculation whereby the potential maturity payment is set out applying the basis for the premium calculation using three different rates of interest.
Using three scenarios would also be in line with other legislation for products that fall under the PRIIPs-regulation. Structured UCITs have to show at least three scenarios of the UCITS’ potential performance. Appropriate scenarios have to be chosen to show the circumstances in which the formula may generate a low, a medium or a high return, including, where applicable, a negative return for the investor.
NOTE: The text attached to the consultation form contains additional footnotes.
12: Do you have any views, positive or negative, on the different examples for presentation of a summary risk indicator? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.
Preferred presentation of a summary risk indicator:One visual element of the risks would be most beneficial to consumers. This would aid comparison amongst PRIIPs.
This summary risk indicator:
- should be one depiction that makes it easy to compare the risks of PRIIPs for consumers;
- has to be balanced to allow a clear and logical categorisation of the different products;
- should be neutral as far as design and colours are concerned to avoid any negative visual connotations linked to the risk categories;
- should make clear that lower risk entails potentially lower reward and that higher risk entails potentially higher rewards, such as is foreseen for the UCITs SRRI;
- could for certain specific cases be accompanied by a narrative warning, cf. the liquidity warning accompanying the Belgian risk label.
The figure used to illustrate the UCITs SRRI presents all the above characteristics and would in addition allow for comparability with UCITS. However, though the methodology behind the SRRI can be integrated in the methodology for a summary risk indicator for PRIIPs, it cannot be used as such, as it does not fit all kinds of PRIIPs (such as guaranteed life insurance PRIIPs).
The different risks included in the risk indicator should not be supplemented by a further explanation of each risk. The goal is to aid the consumers in comparing risks across products. This can easily be done through a single risk indicator, but not through a narrative description of the risks. Moreover, the limited number of pages don’t allow for an extensive description of risks. Only risks that cannot be aggregated could be mentioned in a narrative way in association with the risk label, such as is done for liquidity risk in the Belgian risk label.
Disadvantages of other presentations of a summary risk indicator:
Compared to the figure illustrating the UCITs SRRI almost all the other visual elements included in the discussion paper on p. 37 to 39 have as a disadvantage that they represent risks in a rather negative, as opposed to a neutral way.
The multiple visual elements for risk and the table rating a product against a benchmark for different types of risk are very difficult to understand for consumers and thus difficult to use as a basis for comparison between different PRIIPs.
NOTE: The text attached to the consultation form contains additional footnotes.
13: Do you have any views, positive or negative, on the different examples for presentation of performance scenarios? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.
A visual element showing three performance scenarios in one graph would be the most useful presentation. This would be easy to understand and to be used for comparison by consumers. It would also limit the amount of space needed on the document to illustrate the performance of the PRIIP.However, contrary to the two examples in the discussion document on p. 43 the graph should illustrate possible performances at fixed moments in time, without giving the impression that it shows a continuous evolution over time.
Similarly to the summary risk indicator, it is important to ensure that the presentation of the performance scenarios remain neutral as far as the design, the colours and any terms used to avoid any negative visual connotations or to avoid giving an impression as to the likelihood of each scenario.
Assuralia proposes a visual element such as the graph illustrated in the text attached to the consultation form.
14: Do you have any views on possible combinations of a summary risk indicator with performance scenarios?
In line with our answer to question 13 we think that a single visual element for performance (all scenarios together) combined with a single visual element for risk is the most appropriate combination. This corresponds to combination 2B within Table 9 on p. 44 of the discussion paper.NOTE: The text attached to the consultation form contains additional footnotes.
15: Do you agree with the description of the consumer´s perspective on costs expressed in the Key Questions?
Similarly to the key questions related to consumers’ perspective on risk, the key questions on cost identified in the discussion paper in table 10 should not be disclosed as such in the KID. In this context, it is understood that these key questions have been identified to describe the consumer perspective rather than for the purpose of being disclosed verbatim in the KID. The only question related to the costs that should appear in the KID is “what are the costs?” as established by Article (8)(3)(f) of the PRIIPs Regulation.In addition, it seems pertinent to reiterate here that the terms and wordings of the questions introduced by the PRIIPs Regulation for the headings of the KID already carry some negative connotations. We ask the Joint Committee to be cautious to ensure that the rest of the structure and presentation of the KID do not lead to an overly negative document.
The key questions also raise certain issues, such as the impossibility to obtain a complete comparability of the costs of different PRIIPs. A further description of these issues can be found under question 16.
NOTE: The text attached to the consultation form contains additional footnotes.
16: What are the main challenges you see in achieving a level-playing field in cost disclosures, and how would you address them?
The costs for the insurance sector presented in Table 11 do not adequately reflect the specificities of the costs for insurance products.As already mentioned, insurance products often include other benefits, such as insurance protection, in parallel to the investment performance. In this context it is important to ensure that the premium for the additional and parallel benefits for such insurance-based investment products is not considered to be a cost. As such, the costs related to the biometric risks should not be included in this table.
A consumer cannot simply compare the final investment return of a product that does not provide an insurance benefit, with the final investment return of an insurance product that does provide such a benefit. When buying the insurance product the consumer will get an added service that has its own price, that is to say the premium, that cannot simply be presented as a cost that reduces his initial investment. If a retail consumer is to be able to compare the investment return of the insurance PRIIP versus that of another PRIIP the initial investment should not include the premium for the insurance benefit, but neither should this premium be presented as a cost that impacts the investment return of this product.
NOTE: The text attached to the consultation form contains additional footnotes.
18: Do you have any views on how implicit costs, for instance costs embedded within the price of a structured product, might be best estimated or calculated?
Technique behind cost disclosure:It is of the utmost importance to correctly subdivide the different PRIIPs in categories of similar products for which the same rules on cost disclosure can be set. This will be the main challenge as it seems impossible to set exactly the same rules for cost disclosure amongst all kinds of PRIIPs. Even within a certain group of PRIIPs cost structures may vary, for example open-ended unit-linked insurance products versus structured unit-linked insurance products. It then will be necessary to determine per category of PRIIPs the assumptions to be used regarding cost disclosure.
Determining these assumptions will also be a serious challenge. At the pre-contractual stage, when the KID is produced by the manufacturer, the latter would typically not have any information about the amount the retail investor will invest, nor what will be his investment horizon or the investment options the retail investor will choose. The KID should in theory provide useful and relevant information for all investors, regardless of whether they invest 1000€ or 100 000€, for 1 or 10 years, in 1 or more underlying funds, change the underlying fund during the life time, … . This is very difficult as costs may vary depending on the initial investment, on the options chosen or activated during the lifetime of the contract and even on the distribution channel through which the consumer concludes a contract. Some products may also have a cost structure where some or all of the costs will proportionally decrease when the amount invested increases, or no longer apply if the investment is held for a certain amount of time. Moreover, in unit-linked life insurance products there are costs both at the insurance and the fund level. These would need to be aggregated.
For similar reasons it is very difficult to give both monetary amounts and percentages of all future costs without setting specific assumptions.
Insurance products often include other benefits, such as insurance protection, aside from the investment performance. In this context it is important to ensure that the premium for these insurance benefits is not considered as a cost.
The assumptions or certain details of the assumptions might even have to be set at the national level as:
- not all PRIIPs are harmonised across the EU market;
- consumer behaviour differs from member state to member state.
Cost presentation:
We propose to disclose the different types of costs according to the same format as is being used for UCITs. In the UCITs document all costs are aggregated and presented as either one-off costs, where you can distinguish entry and exit costs, or ongoing costs.
If the Joint Committee does decide that insurance premiums have to be presented as a cost it should at least be possible to clarify the cost presentation by stating that these insurance premiums are used to finance insurance benefits, such as a death benefit or an additional cover against disability and therefore do not form part of the invested amount.
NOTE: The text attached to the consultation form contains additional footnotes.
19: Do you agree with the costs and charges to be disclosed to investors as listed in table 12? If not please state your reasons, including describing any other cost or charges that should be included and the method of calculation.
It is unclear how a presentation of the implicit costs, in parallel to an aggregation of the costs, will benefit the consumer. Therefore, implicit costs should not be calculated or presented separately on the KID. Most of these costs are part of the intrinsic value of the PRIIP and for some it would be very hard if not impossible to calculate them separately. We refer also to our answer to question 19 for more detailed remarks.NOTE: The text attached to the consultation form contains additional footnotes.
20: Do you agree that a RIY or similar calculation method might be used for preparing ‘total aggregate cost’ figures?
Assuralia advocates a transparent disclosure of costs. However, Assuralia is not in favour of the use of a RIY method to calculate ‘total aggregated cost’ figures. The final costs a consumer will pay are not only dependent on the product features (and the features of the underlying investments chosen), but also on the choices a consumer will make, on the applicable national legislation (such as the fiscal legislation) and even on market evolutions.Therefore, in order to use a RIY for insurance PRIIPs several hypotheses have to be set regarding at least the following elements:
- number of investments (single or multiple investments, consecutive or other);
- expected total invested amount;
- expected duration of the investment and expected holding period;
- discount rate;
- expected return on investment.
Changing one hypothesis can have an enormous impact on the RIY. One can thus question the value of such a RIY for a consumer. Moreover, since some of the elements will be the object of the individual consumer choice, any RIY will almost by definition lead to confusion and potentially misleading information for the consumer. This will not lead to a clear transparency of costs.
Assuralia would like to underline that, if the Joint Committee nevertheless would impose a RIY, the hypotheses have to be set at the national level and for each category of PRIIPs since:
- not all PRIIPs are harmonised across the EU market;
- consumer behaviour differs from member state to member state;
- premiums for insurance benefits are not to be regarded as costs.
NOTE: The text attached to the consultation form contains additional footnotes.
21: Are you aware of any other calculation methodologies for costs that should be considered by the ESAs?
No.22: Do you agree that implicit or explicit growth rates should be assumed for the purpose of estimating ‘total aggregate costs’? How might these be set, and should these assumptions be adjusted so as to be consistent with information included on the performance scenarios?
The assumptions set for the performance scenarios should be aligned to those for the calculation of the aggregated costs to avoid confusion for customers and to ensure consistency. However, we are neither in favour of a RIY methodology nor of a ‘Total Cost Ratio’ (that does not make reference to a growth rate), for the reasons set forth in our answer to question 20.It is also not clear what in this context would be the implicit and explicit growth rate for the different types of PRIIPs.
NOTE: The text attached to the consultation form contains additional footnotes.
23: How do you think implicit portfolio transaction costs should be taken into account, bearing in mind also possible methods for assessing implicit costs for structured products?
See our answer to questions 18 and 19.NOTE: The text attached to the consultation form contains additional footnotes.
24: Do you have any views on possible assumptions that should be made, and how these might be calibrated or set?
See our answer to question 16. We propose to disclose the different types of costs according to the same format as is currently being used for UCITs. In the UCITs document all costs are aggregated and presented as either one-off costs, where you can distinguish entry and exit costs, or ongoing costs. We do not see any major challenge in using this as a standard format for cost information for different PRIIPs. This would also aid the comparison between UCIT-PRIIPs and other PRIIPs.NOTE: The text attached to the consultation form contains additional footnotes.
26: Do you have a marked preference or any objection for any of the presentational examples? If so, why? Please provide any alternative examples which you believe could be useful.
No, see our response to questions 16 and 25.NOTE: The text attached to the consultation form contains additional footnotes.
27: In terms of a possible breakdown of costs, are you aware of cost structures for which a split between entry or exit costs, ongoing costs, and costs only paid in specific situations or under specific conditions, would not work?
All risks should be aggregated in order to allow for a greater comparison between PRIIPs. However, the relevance of each risk can differ depending on the kind of PRIIP concerned. This should be translated in the weight or importance that is given to each risk in the aggregation-rule and should differ for each PRIIP. For some products a risk could even be negligible.The Belgian risk label uses the following elements to determine the different risk classes of different PRIIPs:
- qualitative measures:
o Solvency of the manufacturer or issuer of the product;
o Solvency of the member state behind a guarantee scheme;
o Total or partial pay-back of the initial investment;
o (Investment in) derivatives (>50%);
o Investment in eligible assets for funds;
o euro or foreign currency;
o term of the product ( or >10 years);
- quantitative measures:
o Volatility of the underlying fund ( or > SRRI 4).
These measures are considered as follows:
Products in euro are seen as less risky than products in a foreign currency. A product that also provides for a total pay-back of the initial investment will be seen as less risky than a (similar) product that does not provide for a total pay-back. The same goes for products with holding period of 10 years or less, except when they are protected by a guarantee scheme. If the initial investment is protected by a guarantee scheme the product is seen as very low risk regardless of its holding period. The credit worthiness of the manufacturer or issuer of the PRIIP, or the government behind a guarantee scheme, will be an additional differentiating factor between the different lower risk classes.
The medium to higher risk classes contain the products that do not fulfill the conditions to be considered a lower risk product. A product that has an SRRI of 4 or less will be considered medium risk, regardless of whether this product is a UCIT or a unit-linked life insurance that invests in the eligible assets for UCITs. A product that invests for more than 50 percent in derivatives will always be considered to fall within the highest risk class.
Certain risks are difficult to aggregate, but could be the subject of a narrative warning associated with the aggregated risk indicator. This is for instance the case for liquidity risk in the Belgian risk indicator.
The advantage of the methodology behind the Belgian risk label is that it is simple and easily applicable to all PRIIPs on the EU market, requiring at the most only minor adaptations, such as adding or deleting a criterion.
NOTE: The text attached to the consultation form contains additional footnotes.
29: How do you think should cumulative costs be shown?
Assuralia does not agree with the costs to be disclosed as listed in table 12. Most of these costs are part of the intrinsic value of the PRIIP and for some it would be very hard if not impossible to calculate them separately. This would for instance be the case for costs embedded in the pricing parameters. Only if you would compare this value to the value of the PRIIP for an institutional investor you could segregate these costs, but this information has absolutely no value for a retail investor that will never be able to buy the PRIIP at the price for an institutional investor. It should also be noted that some of the costs, such as portfolio management techniques or early redemption costs, cannot be calculated in advance as their occurrence and/or amount will depend on external factors that a PRIIPs-manufacturer cannot all influence.Furthermore, disclosing costs to a consumer in such a detail as in table 12 would have no added value. It would only confuse a consumer and hinder his ability to compare costs amongst PRIIPs. We refer to our answer to question 16 where we propose to disclose costs under the same format as UCITs do.
NOTE: The text attached to the consultation form contains additional footnotes.
30: Do you have any views on the identity information that should be included?
Standardised information on contact details and on competent authorities could help a consumer in comparing products. A manufacturer should have the possibility to add a reference to a webpage, a postal address and optionally the contact details of a distributor or an advisor.As is foreseen by the Regulation itself the date at which the KID was developed should be mentioned.
NOTE: The text attached to the consultation form contains additional footnotes.
31: Do you consider that the criteria set out in recital 18 are sufficiently clear, or would you see some merit in ESAs clarifying them further?
It should be made clear that these criteria are only relevant for certain structured PRIIPs. Otherwise, the risk exists that the criteria put forward are understood too broadly and the comprehension alert will be mentioned for all PRIIPs without any distinction. This will counteract the purpose of the alert to warn retail investors that some investment products within the scope of PRIIPs are more difficult to understand than others.Assuralia understands the criteria to be the same criteria as those applicable in Belgium under the so called “moratorium on particularly complex structured products”. Moreover, the criterion regarding the underlying assets not commonly invested in by retail investors seems to designate the same assets as the assets that by Belgian law manufacturers can no longer propose a retail consumer to invest in.
NOTE: The text attached to the consultation form contains additional footnotes.
32: Do you agree that principles on how a PRIIP might be assigned a ‘type’ will be needed, and do you have views on how these might be set?
We agree that such principles are needed as it is important that the information in the PRIIPs-document is relevant for each type of PRIIP and it seems impossible to set exactly the same rules for each section of the KID for all types of PRIIPs. A classification according to the legal form of the contract or instrument seems to be appropriate. For example, the information should be tailored to the features of insurance products. A legal distinction between the different insurance PRIIPS can be made according to the classification in annex II of Solvency II and annex I of the Life Directive.NOTE: The text attached to the consultation form contains additional footnotes.
33: Are you aware of classifications other than by legal type that you think should be considered?
No, see our suggestion under question 32.34: Do you agree that general principles and as necessary prescribed statements might be needed for completing this section of the KID?
The description of the objectives and means of achieving them should take into account the specificities of the different types of insurance PRIIPs.For guaranteed life insurance products and capital redemption products this means that the description should mention the interest rate that is guaranteed and the possibility to benefit from profit sharing. For unit-linked life insurance the description should be similar to the description that has to be given for a UCIT.
We would also like to point out that the Regulation only demands to refer to specific environmental or social objectives targeted where applicable. Where no such objectives are targeted one can remain silent on this topic. It is important to keep in mind that the document must remain concise as it is limited to 3 pages. Any irrelevant information should therefore be avoided.
NOTE: The text attached to the consultation form contains additional footnotes.
35: Are you aware of other measures that might be taken to improve the quality of the section from the perspective of the retail investor?
See our answer to question 34.36: Do you have views on the information PRIIPs manufacturers should provide on consumer types?
According to the MiFID-rules applicable to most PRIIPs distributors, they have to advice the most appropriate PRIIP to a retail consumer taking into account amongst others his risk appetite and his ability to bear losses. This is an evaluation at the level of the consumer, not at the level of the product, as the manufacturer has to take into account as much as possible the whole investment portfolio of the consumer.Describing in too much detail the ability of the targeted type of consumer to bear investment loss will interfere with the distributor’s ability (and obligation) to take into account the whole investment portfolio of the consumer. For instance, a consumer that can easily bear investment loss, might be advised to invest a small portion of his money in a more secure product to balance his other investments in more risky products, or vice versa.
The description should therefore be axed and limited to the overall aim of the product, for example capital accumulation, the product’s essential characteristics and the optimal or minimum duration of the investment. In case of an insurance-PRIIP it would also be important to explain the possibility for the retail consumer to use the product for succession planning and inheritance tax planning. The PRIIPs-document is aimed at providing the consumer with objective product information and should not be seen by consumers as investment advice.
It is particularly important for this section to:
- align the rules set in the RTS to any other regulatory initiatives, such as the ESA’s work on product oversight and governance and the MiFID level II-rules;
- avoid duplication with any other section of the PRIIPs-document.
NOTE: The text attached to the consultation form contains additional footnotes.
37: What is the key information that needs to be given to the retail investor on insurance benefits, and how should this be presented?
Insurance benefits are an essential part of an insurance-based investment product. These insurance benefits not only include death coverage, but also complementary coverage against other risks, such as disability for instance.These benefits should be described so that the consumer understands the full extent of these benefits. As the PRIIPs-document has to remain concise it is very important to have the possibility to refer to other precontractual and contractual documents in which these benefits are described in complete detail.
Furthermore, insurance products distinguish themselves from other PRIIPs regarding the beneficiary of the investment. Insurers should be able to describe this aspect of the insurance PRIIP in detail as this is crucial information for a consumer. The fact that a beneficiary other than the consumer initially investing in the product can be designated, will influence the way consumers use insurance PRIIPs in comparison too other PRIIPs.
It should also be possible to inform the retail consumers that they enjoy a preferred creditor status when investing in an insurance PRIIP as opposed to any other kind of PRIIP.
NOTE: The text attached to the consultation form contains additional footnotes.
38: Are you aware of PRIIPs where the term may not be readily described, or where there are other issues?
No.39: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
It should be noted that the Belgian legislation obliges banks and insurers to inform the retail consumer in a factual manner of the scope, principal characteristics and address of the Belgian guarantee scheme. The PRIIPs-document should thus allow for this information to be included.NOTE: The text attached to the consultation form contains additional footnotes.
40: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
Considering that the document needs to be concise this section should be limited to a generic description of the recommended holding period and the possibility and conditions for any disinvestment before maturity with a reference to other precontractual and contractual information for the specific details.Any fees or penalties applicable when disinvesting before maturity should be described only in a generic manner in this section of the document with a reference to the section on costs for the numeric data.
NOTE: The text attached to the consultation form contains additional footnotes.
41: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
Belgian legislation imposes upon insurers the obligation to inform potential customers of the arrangements concerning complaints handling and the contact details of the different services to whom they can address themselves. Insurers (and other manufacturers) should be able to add the information on complaints handling as it is requested by national law. This would avoid manufacturers having to give a separate document regarding complaints handling on top of the PRIIPs-document.NOTE: The text attached to the consultation form contains additional footnotes.
42: Do you agree that this section should link to a webpage of the manufacturer?
We agree that this section should link to a webpage of the manufacturer, but it should also be possible to link to a webpage of the distributor, advisor or the fund manager instead of, or on top of the webpage of the manufacturer. The Regulation sets down that this section should contain a brief indication of any additional information documents to be provided to the retail investor, but it does not determine where this information should be made available. Depending on the organisation of the PRIIPs-manufacturer and the sales process of the PRIIP concerned, this information could be made available by different entities involved in the manufacturing and sales of the PRIIPs.It should also be possible to include the contact details of the distributor or the advisor that offers the PRIIP under this section to allow the consumer to contact them to obtain the additional information by other means, such as on paper.
NOTE: The text attached to the consultation form contains additional footnotes.
43: Do you agree with the assessment of when PRIIPs might be concerned by article 6(3)?
We agree with the assessment of when PRIIPs could be concerned by article 6 (3).44: In your market, taking into account the list of criteria in the above section, what products would be concerned by article 6(2a)? What market share do these represent?
We agree that the products concerned by article 6 (3) are essentially unit-linked life insurance contracts and hybrid life-insurance contracts. However, it is impossible to give the exact market share of these products in comparison to the whole of the PRIIPs-market as we do not have an overview of the entire PRIIPs-market.NOTE: The text attached to the consultation form contains additional footnotes.
45: Please provide sufficient information about these products to illustrate why they would be concerned?
Not only do these products dispose of certain very specific insurance-characteristics that are not present in non-insurance PRIIPs, but they also present different investment options within one single product. Both unit-linked and hybrid insurance products can provide a retail consumer with numerous different investment choices. Furthermore, in the case of a hybrid insurance product both components of the product are very different and each requires different information to be provided to the consumer. On top of that a retail consumer needs to receive information on how both components of a hybrid insurance product interact, for example whether it is possible to transfer the money invested in the with-profit component to the unit-linked component and vice versa, whether the profit received in the with-profit component can be invested in the unit-linked component and if so, in which underlying fund of the unit-linked component, … .Giving the retail consumer clear information on all aspects of these products (both the insurance information and the information on all the investment choices) is not possible on 3 A4’s, unless the manufacturer can limit himself to giving generic information and can refer to other documents for further detailed pre-contractual information.
NOTE: The text attached to the consultation form contains additional footnotes.
46: Do you have views on how you think the KID should be adapted for article 6(3) products, taking into account the options outlined by the ESAs?
The KID for article 6 (3) products should show ranges that would indicate the minimum and maximum rates a consumer could be exposed to through the PRIIP, both for the risk indicator and the cost information, without adding indicative examples.This would allow the consumer to understand that the concrete information depends on the investment option(s) he chooses. It would also still allow him to compare the product to other PRIIPs that give a specific risk reward and cost information, which would not be possible if these sections were to include only a narrative description.
Adding indicative examples could create confusion as the consumer might get the impression that these examples show all the different investment options available or are representative of all these investment options.
NOTE: The text attached to the consultation form contains additional footnotes.
47: How do you consider that the product manufacturer should meet the requirements to describe and detail the investment options available?
The manufacturer should be allowed to give generic information on the PRIIPs-document regarding the different investment options, for example through a table enumerating these different options with a reference to other documents for further detailed pre-contractual information regarding the investment options. This reference should be either to a website, pdf or a paper version containing the detailed information on the investment option. The information on risk reward and cost included in the PRIIPs-document should be shown by means of ranges.NOTE: The text attached to the consultation form contains additional footnotes.
49: Do you agree with the measures outlined for periodic review, revision and republication of the KID where ‘material’ changes are found?
Assuralia agrees with the need for a revision and republication of the PRIIPs-document where (and only where) ‘material’ changes arise in the PRIIP. The publication of the revised version on the website should suffice. Imposing any active communication to existing consumers goes beyond the scope of this regulation that handles precontractual information requirements, cf art. 13, 1.NOTE: The text attached to the consultation form contains additional footnotes.
51: Where a PRIIP is offering a wide range of investment options, do you foresee any particular challenges in keeping the KID up-to-date?
The PRIIPs-document will give the consumer precontractual information on the different investment options of the PRIIP he might choose. When a consumer decides to change the investment options in the course of a contract’s existence this does not constitute the conclusion of a new PRIIP and therefore does not require the delivery of a new PRIIPs-document.NOTE: The text attached to the consultation form contains additional footnotes.
52: Are there circumstances where an active communication model should be provided?
No, see our answer to question 49.55: Do you think that the ESAs should aim to develop one or more overall templates for the KID?
It seems impossible to set exactly the same rules for each section of the KID for all types of PRIIPs, therefore the final RTS will preferably take into account each type of PRIIP and will be modulated accordingly. This will de facto lead to several overall templates for the KID.NOTE: The text attached to the consultation form contains additional footnotes.
56: Do you think the KID should be adjusted to reflect the impact of regular payment options (on costs, performance, risk) where these are offered? If so, how?
No, the KID should not be adjusted to reflect the impact of regular payment options. Insurance PRIIPs can offer several different payment options, such as lump sum, regular or free premium payment. In the case of the latter a consumer is free to choose when he pays a premium and how much he pays. In the case of regular premium payment a consumer can often choose to pay monthly, quarterly, half-yearly or yearly.It is important to inform the consumer of the different payment options he can choose from, but it doesn’t seem necessary to illustrate the impact of all the different payment options in the PRIIPs-document. This would limit the use of the PRIIPs-document for comparison purposes and would lengthen it considerably.
Having to make different PRIIPs-documents for each of the payment options the same insurance PRIIP offers does not aid consumer understanding either. The consumer might not understand that all documents describe exactly the same insurance PRIIP, but with another payment option activated. This methodology might also prove to be rather costly for a manufacturer.
One should also not forget the role of the advisor or distributor of the PRIIP who can take into account the personal preferences of each consumer when proposing a PRIIP.
NOTE: The text attached to the consultation form contains additional footnotes.