LITHUANIA: The Bank of Lithuania to significantly strengthen protection of investment life insurance consumers

4 October 2023 — Marina MAGNAVAL
The Bank of Lithuania provided specific regulatory proposals that would prevent improper sales of investment life insurance and protect consumers from misleading, the Bank said.

"Investment life insurance is a complex, risky and expensive product that has been purchased by more than 420,000 people (…) Bad practices related to payment of commissions are widespread in the market, it encourages product distributors to focus more on quantity of sales than quality. The changes we provide would fundamentally change the situation, protect users from being misled and thus significantly strengthen protection of customers who choose this product", says Simonas Krepsta, a member of the Board of the Bank of Lithuania.

in 2021 total number of concluded investment life insurance contracts was about 50 thousand, in 2022 - 51 thousand, and this year in 7 months from January to July - 26 thousand.

The Bank of Lithuania conducted a mystery shopper survey, and it shows that in almost 40% cases customers were offered products not meeting their needs, which may lead to an outcome that a customer did not expect. Depending on the selected product and insurer, direct and indirect deductions can range from 20% to 51%, and accumulated amount may be lower even than paid premiums.

The Bank of Lithuania submits amendments to the Insurance Law, which include among others that remuneration of a product distributor is limited, payment and/or its amount directly depends on the number of concluded IGD contracts. This means that an insurer would not be able to pay a commission to an intermediary for each concluded contract, but could pay a fixed amount (e.g. EUR 1,000 per month). This would allow reduce the conflict of interest and the number of improper sales.



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