The contribution of product oversight and governance (pog) to the single market : a set of organisational rules for business conduct

Abstract

Product oversight and governance (POG) is one of the major innovations, if not the most significant, introduced by the Insurance Distribution Directive (IDD). It is somewhat unusual, however, that this novelty is not reflected both in the proposal for amending the Insurance Mediation Directive, which would later become the IDD and in the preliminary work carried out by the Commission for the drafting of that proposal. POG appeared in the IDD as a mere “copy and paste” from the Market in Financial Instruments Directive II (MiFID II). The initial draft of the MiFID II also did not contain any rules on POG. Thus, the entry of POG into European Union (EU) law was not accompanied by in-depth analyses of the EU bodies that decided to adopt that set of rules in the financial and insurance field.1 Such a genesis of POG delivers a set of rules that should be investigated to understand the effects and usefulness. POG is consistent, in principle, with the evolution in the EU approach to insurance regulation. Solvency II identified the protection of policyholders and beneficiaries as the main objective of supervision.2 A prospective and risk-based approach is the basis of supervision that includes the verification on a continuous basis of the proper operation of the insurance or reinsurance business and of the compliance with supervisory provisions by insurance and reinsurance undertakings.3 The IDD extended the set of rules on the proper operation of the insurance (and reinsurance) business and POG is a crucial component of this political choice. The set of rules on POG are addressed not only to insurance undertakings and distributors but also to the supervisory authorities. POG aims at anticipating customer protection at the design stage for product marketing, and it enables supervisory authorities to have a clearer picture of the businesses processes that are behind the products marketed to customers. This chapter aims to investigate how POG fits into the overall EU insurance regulation. Thus, the first paragraph will analyse the origin of POG concept that can be attributed to the United Kingdom (UK). This “historical” research on the rules and underlying principles appears necessary given the absence of preliminary studies on POG at EU level before its introduction into the IDD. The second paragraph illustrates how IDD incorporated the POG devolving the adoption of the detailed rules to the Commission. The third and fourth paragraphs evaluate, respectively, the current and potential role that the new rules can play in building an authentic Single Market in the insurance sector.