LITHUANIA: Bank of Lithuania: investment life insurance must be clear and meet consumer needs

28 February 2023 —
The results of thethe Mystery Shoppers Survey conducted by the Bank of Lithuania show that investment life insurance is often offered without considering the customers' needs. The Bank of Lithuania is initiating a public consultation on proposals that would reduce the risk of improper sale of investment life insurance.

"Investment products distributed to citizens must be clear, understandable and meet their needs. The mystery shopper survey conducted by the Bank of Lithuania revealed significant shortcomings in the distribution of investment life insurance. We present our proposals on how to improve regulation so that consumers purchase a product that meets their needs, and the gaps are eliminated," says Simonas Krepsta, a member of the board of the Bank of Lithuania.

In 2021 a consumer survey conducted by the Bank of Lithuania showed that investment life insurance was one of the least clear types of insurance. It is a complex, risky and expensive product. However, unit-linked life insurance sales are increasing - for example, in 2021 almost 50 thousand policies were sold, and in 2022 - 51 thousand. In total, more than 400 thousand people have purchased investment life insurance.

In the distribution of investment life insurance, insurance agents dominate (~70% of sales).

During the mystery shopper investigation, 80 mystery purchases were made from eight insurers operating in Lithuania. It was determined that in almost 40% of cases, mystery shoppers were offered a product that did not meet their needs. In addition, information necessary to determine customer needs and product acceptability was not always collected.

The Bank of Lithuania, having evaluated the results of the mystery shopper investigation and foreign experience, proposes to initiate amendments to the Insurance Law, which would no longer allow insurers to pay commission or non-monetary benefits for distribution of IGD contracts. Certain restrictions or a complete ban on paying commission for distribution of investment products are established in ten countries of the European Union (EU) (Ireland, Czech Republic, Spain, Italy, Netherlands, Romania, Slovakia, Finland, Sweden, and Hungary). It is also proposed to establish that product suitability assessment and provision of recommendations should be mandatory when selling investment life insurance. This practice is followed by eight EU countries (Czech Republic, Greece, Italy, Poland, Luxembourg, Romania, Slovakia and Hungary).