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Lithuanian Central Bank Proposes Curbs on Investment Life Insurance Sales Amid Mis-selling Concerns
🇱🇹 Lithuania /Economy & Trade

Lithuanian Central Bank Proposes Curbs on Investment Life Insurance Sales Amid Mis-selling Concerns

From Delfi · (12m ago) Lithuanian Critical tone

Translated from Lithuanian, summarized and contextualized by DistantNews.

TLDR

  • Lithuania's central bank proposes stricter regulations on investment life insurance sales to prevent conflicts of interest and mis-selling.
  • A study found that nearly 40% of consumers were offered products not meeting their needs, with the most expensive options often sold.
  • The proposed changes aim to limit agent commissions tied to sales volume and mandate product suitability assessments, though business impact is also being considered.

The Bank of Lithuania (LB) has identified significant issues within the investment life insurance (IGD) market, proposing regulatory changes to protect consumers from mis-selling and conflicts of interest. Data from the LB reveals a concerning trend where agents, incentivized by commissions directly linked to the number of contracts they broker, frequently offer products that do not align with customer needs. This practice, exacerbated by a distribution model where agents are the primary sales channel, leads to consumers being sold expensive, unsuitable policies, often resulting in disappointment when little to no savings accumulate over time.

Lietuvoje yra susiklosčiusi tokia platinimo praktika, kai agentai gauna mokestį už kiekvieną sudarytą sutartį. Ir dėl šio interesų konflikto labai dažnai, beveik 40 proc., ką parodė LB tyrimas, vartotojams yra pasiūlymas produktas, kuris neatitinka jų poreikių

— Vaida MarkevičienėDeputy chair of the Bank of Lithuania board explaining the conflict of interest in the current commission system for insurance agents.

Vaida Markevičienė, deputy chair of the LB board, highlighted at a Seimas Budget and Finance Committee meeting that this commission system, tied to sales figures, creates conflicts of interest. She noted that nearly 40% of consumers, according to an LB study, are offered products that don't match their requirements. Justina Šalčiuvienė, head of the LB's Financial Market Supervision Department, added that proposals to tighten regulations were submitted to the Ministry of Finance as early as 2020 and again last year. The central bank suggests amending the Insurance Law to cap or limit remuneration for insurance product distributors, commonly known as insurance agents, when such pay is directly dependent on the number of IGD contracts they facilitate.

Taip pat iš savo duomenų matome, kad dažniausiai yra parduodamas pats brangiausias produktas, lyginant su alternatyvomis. Ir tikrai būna atvejų, kai žmonės nustemba, kodėl po ilgo laiko jie nieko nesukaupia

— Vaida MarkevičienėDeputy chair of the Bank of Lithuania board describing how consumers are often sold the most expensive products and are later surprised by the lack of accumulated savings.

Furthermore, to curb instances of improper sales, the LB proposes making a product suitability assessment and recommendation mandatory for IGD sales. Šalčiuvienė pointed out that while over 432,000 residents have acquired IGD, and new contracts are signed annually between 29,000 and 50,000, the insurance often fails to meet client needs. A secret shopper study by the LB found that 39% of participants were offered investment life insurance that did not suit their needs. The popularity of IGD, the LB argues, is driven by supply rather than demand, with agents dominating sales and earning commissions that can reach up to 770 euros per contract. This commission, at an average of 11% in Lithuania, is nearly four times the EU average of 3%, placing Lithuania among the top countries in the EU for such payouts.

Mūsų slaptojo pirkimo tyrimas parodė, kad 39 proc. atvejų slaptiesiems pirkėjams buvo pasiūlyta jų poreikių neatitinkantis investicinis gyvybės draudimas

— Justina ŠalčiuvienėHead of the Bank of Lithuania's Financial Market Supervision Department presenting findings from a secret shopper study on product suitability.

While the LB pushes for these consumer protection measures, the Ministry of Finance, represented by Deputy Minister Lukas Jakubonis, acknowledges the need to consider the impact on businesses as well. Jakubonis suggested exploring adjustments to commission sizes and other comprehensive measures to find a balance. However, Algirdas Sysas, chairman of the Budget and Finance Committee, urged for swift action, emphasizing that politicians must safeguard consumer rights and that the bank's warnings over the past three years warrant a faster response rather than further deliberation by working groups. The Ministry of Finance stated it would consider both business and consumer interests in its decision-making process.

Mūsų slaptojo pirkimo tyrimas parodė, kad 39 proc. atvejų slaptiesiems pirkėjams buvo pasiūlyta jų poreikių neatitinkantis investicinis gyvybės draudimas

— Justina ŠalčiuvienėHead of the Bank of Lithuania's Financial Market Supervision Department presenting findings from a secret shopper study on product suitability.
DistantNews Editorial

Originally published by Delfi in Lithuanian. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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