Since January 1, 2013, financial institutions have an additional legal obligation. According to Article 32 of BGFO 3, they must ensure that financial products take into account the customer’s interests in a balanced manner. For insurance companies, this obligation also applies to products sold by a managing agent (GA) on their behalf, and for which they bear the risk. To comply with this obligation, they need to have insight into how the products reach the customer through the authority. This includes aspects such as: what do the insurance policies, clauses, and brochures look like, and are the products up-to-date with the authority? The GA is responsible for insurance products developed by themselves. Through the PA(R)P, they can meet this legal obligation. 

This regulation applies from that date to both new and existing products, as well as products that become ‘non-selling’ at any time. 

This requires managing parties to shape the product development process in such a way that they allow all relevant parts of the business to contribute to the creation of a financial product. The PA(R)P has become an indispensable tool in this process. 

PA(R)P Working Group  

The VerzekeringsAnalyse focuses on performing insurance analyses, such as condition comparisons, and activities like product development. It is logical that insurance specialist Minke Verberk has naturally come into contact with PA(R)P. As early as 2012, she started working on this with insurance companies. To determine how the GA viewed this, she organized knowledge sessions that eventually evolved into a PA(R)P working group, which now also includes insurers (for the composition, see the box). The Dutch Association of Managing Agents (NVGA) also has a seat in this working group, represented by board member Rien Goes. 

Unified Agreements 

The primary goal of the PA(R)P working group is to offer insurance companies and GAs a uniform approach. Goes states, “The NVGA considers it very important that there is a clear structure in questioning so that each insurance company does not present its own questions to the GA.” Sione Bakker confirms this: “You shouldn’t imagine that if you have a pool with five signatories, they would force PA(R)P to convert, phase out, and terminate products, each of the five coming up with a separate questionnaire for the same products. Therefore, the working group is in the process of developing an evaluation framework/questionnaire, accompanied by a manual, to assist the GA in fulfilling its PA(R)P obligation.” Verberk emphasizes that, given the open norm of the legislation, this is purely a guideline/model.   

“And a dynamic model,” Goes continues, “because over time, both questions will be added and dropped. To be able to centrally present the completed questionnaires confidentially via the digital infrastructure, similar to the Self Assessment, the working group is in talks with VolmachtBeheer. If the GA could ‘upload’ the desired documents via VolmachtBeheer, and the insurance companies could view them, they could take responsibility for it. This also applies to the follow-up insurance companies. Like the ‘leader,’ they must go through the entire PA(R)P process. The leader can ‘upload’ a so-called declaration of agreement in the same way as the GA. This way, he doesn’t have to disclose the structure of his fee. This is actually prescribed by PA(R)P but is in conflict with competition legislation in a pool construction.” 

To align the model as closely as possible with the regulator’s vision, the AFM has also participated in a working group session. 

Product Restriction 

According to Goes, PA(R)P fits perfectly into the current thinking ‘from product to customer-oriented.’ “PA(R)P helps to think much more from the customer’s perspective and create products that the customer truly needs. Often, for every exception, a new product was created. Those days are gone. 

“Get Started!” This is the most important message from Sione Bakker (Zicht Volmachtbedrijf BV), Rien Goes (Meeùs Assuradeuren*), and Minke Verberk MSc BBA (De VerzekeringsAnalyse) to all underwriting parties that do not yet have a Product Approval & Review Process (PA(R)P). They acknowledge that setting up such a process is a comprehensive and challenging task. Still, once the process is established, it certainly offers advantages to the company. According to them, the most significant effort lies with medium-sized underwriting companies. These often have an extensive product range and do not always have ‘separate’ product managers or compliance managers. “Insurance companies, on the other hand, have all of this largely in order due to the obligations prescribed by the Customer-Oriented Insurance Quality Mark,” according to the three experts. 

COMPOSITION PA(R)P WORKING GROUP 

The PA(R)P working group consists of the underwriting companies: Aon, DAK, Meijers, Van Lanschot, UMG, and Voogd & Voogd, and the insurance companies: Aegon, Amlin, ASR, Delta Lloyd, and Nationale-Nederlanden. Additionally, the NVGA (Dutch Association of Underwriting Agencies) is also part of the working group. 

Limitation of Products 

According to Goes, the PA(R)P fits perfectly into the current shift from a ‘product-centric’ to a ‘customer-centric’ approach. “PA(R)P helps to think much more from the customer’s perspective and to create products that truly meet the customer’s needs. It used to be the case that a new product was created for every exception. Those times are over.   

Now, the first step is to see if it fits into an existing product or if it can be a variant of an existing product. The proliferation of various products is curtailed by the new legislation.” Bakker speaks from personal experience: “Although Zicht risk and insurance advisors already significantly reduced the number of products by transitioning to one new system last year, PA(R)P encourages this further. In total, we reduced from 2000 to 150 products and also phased out many pools. As a result, we will only continue with three pools next year.” “The challenge is to gather all necessary information, from legal texts to rates, into a product file and make it clear,” explains Verberk. “The responsibility for this lies with the product owner. In the case of the GA, it falls on the plate of the underwriting or product manager. So, it really falls on those who have an understanding of the product, as it involves product development. The compliance manager only checks if everything complies with the laws and regulations. In smaller underwriting agencies, these functions are often consolidated in one person.” 

‘Non-selling’ Products 

Bakker indicates that you now also need to have a more active policy when discontinuing a product. “We still have some old products that are ‘locked,’ and we are going to see if we have a better offer for those customers. And if you do, you also have to actively offer it. This is something that insurance companies hardly do now, but it is good for the customer and for retaining these customers. If you do nothing, you run the risk that a customer encounters competing products.” A Positive Development According to the trio, PA(R)P is an overall positive development. Verberk: “It helps you clean up your entire product portfolio, be more conscious of the product range, and think more critically about the processes. So, it’s not just about ‘PA(R)P-ing’ a product; it’s about the whole process within the organization. Where do you place the responsibility for developing a product? Where is the maintenance? How are changes to a product handled, and how is all of this managed within an organization? PA(R)P helps you to reproduce everything. So, essentially, if there are complaints from the customer or questions from the AFM, and you need to recall what you agreed with that customer, including the content of the product, PA(R)P can help. Often, this origin can no longer be easily determined. PA(R)P also goes beyond binding authorities. It also forces the intermediary to be much more conscious about product development. It is reasonable to ask the intermediary to create a ‘business case’ when introducing a new product. In short, this compels the organization as a whole to work more efficiently. In addition, insurance companies gain more insight into the process through better dossier construction at the GA and are therefore more ‘in control,’ which is a requirement under Solvency II.” 

Continuous Process
In addition to acknowledging that the initial stages can be challenging, the trio emphasizes that PA(R)P is an ongoing process. Bakker: “You can’t finish it and put it on the shelf because you will have findings and follow-up actions to improve the products. And this often leads to a substantial task. Moreover, the guideline from the Dutch Association of Insurers is that you should ‘PA(R)P’ every three years, but it can certainly be done more frequently. Therefore, you really have to embed the entire process into your organization so that you are continually conscious of your product range.” Findings, according to Verberk, can be that terms are not written in plain language (B1 level) and that product brochures leave much to be desired. It could also be that the return on investment is not good, which might necessitate premium increases or decreases, or that certain customer groups no longer align with the company’s values. “This operation creates a lot of work, and it’s not surprising that parties turn to De VerzekeringsAnalyse, especially for rewriting insurance policy documents, terms, and clauses in understandable language.” In this context, Goes recommends inquiring with the claims department about rejected claims due to unclear conditions. “It is very enlightening.” Bakker also believes that the complaints registry is a source of input on how to formulate conditions. “Examine the complaints you received in the last period. You can incorporate them into the renewal process.” The experts advise GA to create a good review calendar. “Before you know it, it’s January 1, 2016, so you need to schedule when to do what. Try not to solve everything immediately but plan what needs to be done. Communicate in a timely manner with insurance companies because they also need time to finish the story. PA(R)P applies to both the private and commercial markets.”   

Start!
In early 2015, the NVGA will organize workshops on Self Assessment and PA(R)P. “However, do not wait for this, but start,” emphasize the experts. Goes: “Make some necessary policy decisions and, if necessary, enlist an external party with expertise to help you. The working group’s questionnaire is a useful tool, but the AFM has already made it clear that it should not be used solely as a checklist. In that case, your organization is too limited and therefore not ‘in control.’ And when you are in control, as a GA, you become a stronger interlocutor for the insurance company.” 

Offering insurance products through a pool: who is responsible?
The responsible party in this case is the main developer of the product. The main developer shapes aspects such as the product conditions, the choice of distribution channels, and marketing. This party has the position to make any adjustments to the product and everything related to it. However, other involved parties also have responsibilities and must have a product development process of sufficient quality. In each specific situation, it is assessed who is responsible for which part of the product development process.   

Here are some scenarios outlined to show who is responsible for the product development process:   

1. **Insurance conditions developed or modified by the managing agent:** In this case, the managing agent is responsible for the product development process and the primary contact for the AFM. The AFM may turn to the insurer for information on the creation of the premium, such as actuarial data.
2. **Products developed based on (standard) conditions of the pool
   leader:** The pool leader is responsible for the product development
   process and the primary contact for the AFM.  

3. **Products developed based on (standard) conditions of another managing agent than the pool leader:** The respective managing agent is responsible for the product development process and the primary contact for the AFM.  

4. **Products developed based on (standard) conditions of another insurer (possibly a former managing agent):** The managing agent is the primary contact for the AFM. Both parties, both the managing agent and the drafter of the conditions, can be involved in a potential investigation. The drafter of the conditions can be asked, for example, to provide information about the creation of the premium, such as actuarial data.

Minke Verberk
“The challenge is to gather all necessary information in a product dossier and make it transparent.”

Sione Bakker
“The PA(R)P exercise at Zicht risk and insurance advisors has led us to continue with only three pools next year, reducing the number of products from 2000 to 150. “

Rien Goes
The NVGA (Dutch Association of Managing General Agents) considers it crucial to establish a consistent structure in the questioning process to ensure that each insurance company does not pose its own set of questions to the managing general agent (GA).