Tuesday, 19 November 2013

Assuring informed choice in life assurance contracts - EFTA court (E-11/12)

On 13 June this year the EFTA court gave a judgment in the case Koch, Hummel and Müller v. Swiss Life (E-11/12) which concerned the duty to inform and the duty to advice in life assurance contracts, as regulated by the Consolidated Life Assurance Directive 2002/83/EC and the Insurance Mediation Directive 2002/92/EC

The case was referred to the EFTA court from the Principality of Liechtenstein where the defendant, a life assurance company Swiss Life was registered. The plaintiffs were German and Austrian national residents who independently concluded unit-linked life assurances with Swiss Life. In all cases, the parties agreed on a type of investment "as per the attached investment strategy". The plaintiffs paid assurance premiums which were then invested by Swiss Life as cover funds, in accordance with investment strategies. Unfortunately, these investments have not been successful which led the plaintiffs to claim damages from Swiss Life, mainly on the grounds that they were not able to estimate the level of risk involved in the investment, and that there was no transparency in the products' structure. It was established that Swiss Life did not inform the plaintiffs about the relevant investment products, but it claimed that it were the plaintiffs who put a request for these particular investment strategies to be included in their contract (Par. 36).

The relevant legal questions were: whether Swiss Life had a duty to advice the plaintiffs on investment strategies and whether there was a duty to inform about the unit-linked assurance products and their risks?

The EFTA court considers that Life Assurance Directive intends to protect consumers by granting them a right to informed choice (Par. 62). Life assurance contracts are perceived by the court as generally complex and detailed, which may make them difficult to understand for the average consumer (reasonably well informed and reasonably observant and circumspect). Additionally, such contracts often bring about serious financial consequences for consumers over a long period of time. Both these factors convince the court that transparent information on these contracts is crucial to consumers (Par. 63). The consumer must, therefore, "be provided with whatever information is necessary to enable him to choose the contract which best meets his requirements" and the Directive's information requirements should only be seen as a minimum standard that needs to be fulfilled (Par. 64-65). However, the Directive does not impose a duty to advice on the assurance company (Par. 69, 72) and instead trusts in the ability of an average consumer to compare essential elements of the contract as long as he is provided with clear and sufficient information (Par. 70). Notwithstanding the above-mentioned, national legislators could impose such a duty to advice on assurance companies (Par. 75).

Since the performance of the duty to inform is seen as crucial to guarantee consumer protection, it does not surprise that consumers do not need to look themselves for information and instead may await this information being given to them by service providers. The EFTA court states that the relevant information on the units to which benefits are linked should be given to consumers in writing prior to contract's conclusion, and it may not be required of them to use a search engine to find and access the necessary information (in compliance with the Content Services, CJEU case) (Par. 96). The information should be clear, complete and accurate and allow consumers to define the units to which the benefits are linked, and to describe the nature of the underlying assets (Par. 102). At the same time, it does not matter who provides the consumer with the relevant information - the assurance company or an insurance intermediary (Par. 110). What is important is that the consumer gets necessary information and not who he gets it from.

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