Insurers should keep customers informed about how variable annuities work under different market conditions and what options they have during the life of the contract, the European Insurance and Occupational Pensions Authority said today.
Publishing a report on good practices for disclosure and selling of variable annuities, the authority also said variable annuities should be sold exclusively based on advice by a suitably qualified salesperson.
And, to prevent the risk of miss-selling, insurers were told they should get adequate information about the demands and needs of their potential variable annuity clients, as well as carrying out due diligence on intermediary firms.
Gabriel Bernardino, chairman of EIOPA, said the report fulfilled EIOPA's role in promoting transparency, simplicity and fairness in the insurance market and would help to create a common supervisory culture in the EU.
'This report identifies how consumer interests can be better protected as regards the sales of valuable annuities and shows EIOPA's commitment towards consumer protection.
'I do expect that insurance companies will seriously take into consideration these good practices and incorporate them in their practices of the variable annuities' disclosure and selling.'
He added that EIOPA would focus on closely monitoring and reviewing the issue.
Among the tools in the report is an indicative list of frequently asked questions that companies can use to ensure potential customers will have a good understanding of the product, the charges and any specific risks they should be aware of.
To prevent miss-selling, it also outlines a list of questions to ensure the offered product meets the customer's needs and demands.