Non-interest costs of credit and the applicability of the rate of interest: the CJEU in C-744/24

In April 2026, the CJEU delivered a judgment in C-744/24 P.W. v Bank Polska Kasa Opieki S.A. This is an interesting case because it tackled the scope and meaning of various cost-related notions in  Directive 2008/48/EC on Consumer Credit, as well as the common practice of tying credit products to other products, such as insurance.

The consumer entered into a loan contract for 150 000 zlotys (PLN) (approximately EUR 34 400), where PLN 133 214.92 (approximately EUR 30 550) was actually paid to the consumer, with the remaining PLN 16 785.08 (approximately EUR 3 850) being used to pay for credit insurance, described as ‘voluntary’. Taking out that voluntary insurance reduced the interest rate. The consumer paid a total of PLN 207,073.53 (approximately EUR 47,500); the total cost of the credit was PLN 73 858.61 (approximately EUR 16 950). That cost included interest of PLN 57 073.53 (approximately EUR 13 100) and an insurance premium of PLN 16 785.08 (approximately EUR 3 850). The interest rate was 8.49% per annum (comprising a base rate of 4.36% and a margin of 4.13%). That interest rate was applied to the amount actually paid to the consumer under the contract, plus the insurance premium. The APR stated in the credit agreement was 12.57%. The term of the agreement was set at 96 months.

The consumer disputed the correct calculation of the APR and started an action before the Sąd Rejonowy we Włodawie (District Court, Włodawa, Poland); which asked the CJEU:
Is Article 3(g) and (j) of Directive 2008/48, read in conjunction with Article 10(2) of that directive, must be interpreted as precluding the inclusion, in consumer credit agreements, of terms providing for the application of the interest rate not only to the total amount of the credit but also to sums allocated to the payment of costs associated with that credit and which, as a result, form part of the total cost of the credit to the consumer. In other words, whether the rate of interest can be applied to other components of the cost structure (forming part of the total cost of credit) rather than the total amount of credit.

The dispute therefore raised the question of the regime of non-interest costs, or as introduced in the applicable Polish law, ‘cost of credit excluding interest ’, such as the insurance premium in question.

Under Article 3(g) the total cost of the credit to the consumer means all the costs, including interest, commissions, taxes and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor, except for notarial costs; costs in respect of ancillary services relating to the credit agreement, in particular insurance premiums, are also included if, in addition, the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed. Under Article 3(g), therefore, all costs in question are part of the total cost of credit, including non-interest costs such as the insurance premium. Although labelled as voluntary, because it provided access to a better rate, it directly falls under the components of the total cost of credit (see para 41). It is also important that the CJEU noted that it does not matter what sum was actually paid to the borrower. The fact that the insurance premium was not first transferred to the borrower, who would then transfer it back to the bank, does not affect the definition of the total cost of credit. The insurance premium, therefore, was part of the total cost of credit. Under Article 3(i), the total cost of credit is expressed as an annual percentage. The APR ‘means the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit, where applicable, including the costs referred to in Article 19(2)’.

The CJEU then further analysed other concepts in the Directive. Under Article 3(l) the total amount of credit means 'the ceiling or the total sums made available under a credit agreement'; whereas  under article 3 (h) total amount payable by the consumer ‘means the sum of the total amount of the credit and the total cost of the credit to the consumer ', whereas under Article 3(j) the borrowing rate is the ‘interest rate … applied … to the amount of credit drawn down’. The CJEU noted that the total amount of credit and the amount of the credit drawdown designate the sums made available to the consumer, which excludes those used by the lender to pay the costs connected with the credit concerned and which are not actually paid to the consumer (para 55).

Based on this and referring to its earlier practice, the CJEU concluded that the concepts of total amount of credit and total cost of the credit are mutually exclusive and that, consequently, the ‘total amount of credit’ cannot include any of the sums forming part of the ‘total cost of the credit’ to the consumer (para 53). Consequently, ‘none of the sums intended to cover the agreed commitments under the relevant credit concerned – such as administrative costs, interest, commissions and any other type of charge which the consumer is required to pay – may be included either in the total amount of credit, within the meaning of Article 3(l) and Article 10(2) of Directive 2008/48, or in the amount of the credit drawdown within the meaning of Article 3(j) of Directive 2008/48 (para 57).   That also applies to insurance costs (para 57).

The CJEU ruled that Article 3(g) and (j) of Directive 2008/48/EC, read in conjunction with Article 10(2) of that directive, must be interpreted as precluding the inclusion, in consumer credit agreements, of terms providing for the application of the interest rate not only to the total amount of the credit but also to sums allocated to the payment of costs associated with that credit and which, as a result, form part of the total cost of the credit to the consumer. In short, the CEU ruled that interest cannot be applied to the payment of the sums that are used to cover insurance premiums and other costs of credit.

This is an important ruling that addressed the frequent practice of banks to condition one product on another. This practice of tying and bundling is now addressed in the new Directive 2023/2225 on Consumer Credit, which enters into force on November 20 2026. The ruling remains relevant as it deals with the regime of costs associated to such practices. The ruling is also relevant to other non-interest costs associated with the loan. Although these are part of the total cost of credit and are part of the APR, they cannot be part of a basis on which the interest is calculated on. The interest rate, based on the judgment, can only apply to the what falls under the total amount of credit, the actual sum made available by the creditor to the consumer.

Going in blind - Consequences of no opportunity to read insurance terms: CJEU in Occidental (C-263/22)

Last week, on 20 April, the CJEU issued a judgment in the case Occidental - Companhia Portuguesa de Seguros de Vida (C-263/22) interpreting further provisions of Articles 3-6 of the Unfair Contract Terms Directive.

By Ryoji Iwata on Unsplash 

The case concerned a bank loan taken by a Portuguese couple, who joined a group insurance contract between the bank and Occidental, an insurance company. Occidental was to guarantee repayment in the event of the consumer's permanent incapacity. When consumer became permanently incapacitated, the insurer refused re-payment, invoking invalidity of the insurance contract due to incorrect and incomplete health declaration by consumer. The insurance contract also excluded from the cover any permanent incapacity resulting from illness that consumers suffered from prior to the contract's conclusion. Consumers claimed, however, that they were never informed about this exclusion clause and that they also did not provide their own health questionnaire to the insurer, as a bank employee completed it for them. 

Portuguese court struggled with two strands approach to the above situation in Portuguese case law, either recognising the insurers' duty to notify policy terms to policyholders or not, and the compliance of the second approach with the UCTD.

Opportunity to read

The first and second questions are interpreted as inquiring about the scope of obligation to create an opportunity to read terms and conditions for consumers. The CJEU reiterates the compliance rules with the principle of transparency, including the need to provide relevant information to consumers before the conclusion of the contract (para 27). Importantly, the CJEU draws attention the fact that with linked contracts (consumers concluding loan and insurance contracts simultaneously) consumers 'vigilance regarding the extent of the risks covered by that insurance contract' will not be the same as when they are concluding loan and insurance contracts separately (para 28). Consumers will need also to have access to all terms of a contract before its conclusion (para 29), regardless whether these are core contract terms (paras 30 and 31), incl. receiving information on 'the specific features of the arrangements for covering the loan repayments' in the event of permanent incapacity to work (para 28). After all, transparency means being able to evaluate economic consequences flowing from the concluded agreement.

To sum up, if consumers did not have access to full terms and conditions prior to concluding the contract, they could invoke UCTD protection against the trader/service provider. Further, the attention drawn by the CJEU to the increased need for transparency when linked contracts are concluded could result in service providers needing to re-evaluate their disclosures in such circumstances.

Consequences of lack of opportunity to read insurance terms on insurance cover

Since consumers had no chance to read the terms of the insurance cover on possible exclusions from the cover's scope, this lack of transparency would weigh in on the evaluation of unfairness (paras 40-41). The CJEU proceeds to outline in details how national court should conduct the unfairness test, i.e. assessing good faith and checking for a significant imbalance in parties rights and obligations to the contract. Importantly, the CJEU draws a conclusion that '(...) by not allowing the consumer concerned to become acquainted, prior to the conclusion of that contract, with the information relating to those contractual terms and all the consequences of the conclusion of that contract, the seller or supplier places that risk, arising from any permanent incapacity, in whole or at least in part, on that consumer' (para 50). If, consequently, the national court would find that consumers would not accept these terms in individual negotiations, then the seller/supplier should be seen as acting not in good faith and the term as unfair (para 51). The term would then be void and not enforceable against consumers (paras 52-53). This legal status  of unfair terms could not be changed by national legislation regulating civil liability of insurers for failure to notify policyholders (para 53). Such a civil liability could be pursued separately by consumers (para 55).

To sum up, the fact that consumers had no opportunity to read the term does not lead to a consequence of that term being automatically void under EU consumer law. This circumstance weighs in though, rather heavily, on the unfairness test. Only when the term is declared unfair, it needs to be considered as void, with all the consequences attributable to this.

Delay to consumer insurance upgrades

On 9 March 2018 the Council has adopted a directive postponing the application date of new rules on consumer insurance products to 1 October 2018, with the deadline for transposition moved to 1 July 2018 (Council delays application of new rules). The new rules are adopted through the Directive 2016/97 on insurance distribution, which originally was supposed to be applicable as of March this year (see our previous post on this directive).

New Commission study on insurance services

On 27^th October the European Commission published a study on consumers’ decision making in insurance services. Insurance services are particularly important due to the size of the market (with non-life premiums rising to € 343bn in 2015, according to Insurance Europe) as well as for ensuring financial stability.

The study focused on non-life insurance products purchased domestically and cross-border, with cross-border purchases being key for the internal market. The methodology of the study combined a systematic literature review, market data collection and stakeholder interviews along with behavioural experiments both online and in the laboratory. The use of behavioural experiments shows the increasing influence and status of behavioural economics in EU policy making, as the results of the study are meant to inform the European Commission’s Consumer Financial Services Action Plan. 

The study produced some interesting findings. For example it highlighted that consumers are more likely to engage with the information provided when it is presented in a concise, salient and user-friendly way. However, the real challenge lies in pointing out exactly the strategies that would make the presentation of the info user-friendly, and the study provides some insights on that. For example, separating sections using boxes and presenting text in two columns, using icons to indicate the subject of each section, and using traffic light coloured ticks as bullet points to indicate risks covered and not covered. Weight is placed on national authorities frequently monitoring the provision of information and harmonising the rules on provision of information where possible. Price comparison websites, another informational aspect, can be helpful for consumers but the study raised concerns as to their impartiality and independence.

Another key finding of the study is the negative effect of pressure in the decision making of consumers, with pressure selling being particularly prevalent in car rental and add-on insurance. Pressure selling makes consumers make sub-optimal decisions or buy products they do not need. Beyond improving enforcement, what is suggested could help with pressure selling is better information, especially underlining the existence of alternatives and presenting the product in a balanced way. Timing is key for addressing pressure, as well as for processing information. Allowing consumers time to reflect on their decisions and to modify them at a later date can prove to be helpful, according to the results of the study. However, there is the issue of how much consumers make use of such measures and what can be done for addressing pressure selling ex ante.

As most behavioural studies, this one also points out that consumers tend to be passive, they prefer the familiar and do not devote sufficient time and effort in comparing alternatives in the market. Consumers have a low awareness and understanding of contract terms. Behavioural biases play a role in consumers buying excess that is too low for their needs or choosing not to buy insurance at all. The image of the consumer painted in this study is at odds with the that of the average consumer as used in CJEU case law, a consumer who is expected to be ‘reasonably well-informed, observant and circumspect’.

In relation to cross-border shopping for non-life insurance the study found that although there is some interest for it, there are barriers preventing consumers from cross-border purchases, including low awareness of the possibility for cross-border purchases, language barriers and the complexity of the market, as well as regulatory differences and concern over problem solving. Harmonisation is key for promoting cross border purchases and it is one of the suggestions made, especially for harmonising definitions and contract formats.

Though the study itself calls for further research and collection of more data, it is a welcome systematic effort to study the European insurance market with robust methodology and concrete suggestions. It remains to be seen how much it will influence EU policy when it comes to taking concrete measures.

German BGH "limits and expands" consumer withdrawal rights with a view to mortgages

Late in 2013 the CJEU issued a judgment (Case C‑209/12) following upon a request for a preliminary ruling under Article 267 TFEU from the Bundesgerichtshof (Germany) in which it held that a national provision, under which a right of withdrawal lapses one year at the latest after payment of the first premium, where the policy-holder has not been informed about the right of cancellation, was contrary to EU law. Before 2008 it was standard procedure in Germany that an insuree would  receive the general conditions of assurance and consumer information only upon receipt of the policy document - hence after conclusion of the contract. Upon receipt of the policy documents consumers were granted a 2 weeks (later 1 month) withdrawal period. If the consumer never received the documents, the right of withdrawal was assumed to having lapsed after a year with the contract hence being valid. This judgment was to have effect for insurance contracts for the time period from 1994 to 2007 giving consumers that had not been correctly informed about their rights basically an "eternal right of withdrawal" that is financially far more favourable than a classical cancellation of such a contract. It puts the consumer in the position as if the contract had never been concluded.

Taking into consideration the CJEU judgment the BGH held that such damage payments may be limited given that the insuree has been profiting from the insurance coverage - thereby limiting the effect of the CJEU judgment to some extent. 

The Allianz, one large German insurance company, at the time did not expect a big impact of the judgment as it claimed to be able to prove that it had sent out the policy documents in time to all its customers. Few cases of consumers trying to withdraw their contracts upon the basis of not having received the policy document were, consequently, expected.

It has, however, generally become popular to withdraw insurance contracts due to formal errors of different kinds (German legislation on the formal requirements kept changing). In a recent judgment the BGH has, in line with the previous judgment, once more confirmed the possibility to limit damage payments because the consumer has benefitted from the insurance protection. At the same time the BGH, however, states explicitely that the consumer upon a successful withdrawal can claim back all the acquisition costs - typically a multiple of Euro 1000 - from the insurer. These may not be subtracted.

Agreement reached on Insurance Distribution Directive: good news for European consumers?

The new Directive on insurance sale is a step closer to being adopted after representatives of the European Parliament reached agreement with the Council on the last day of the Latvian Presidency.

Background

The new Insurance Distribution Directive (IDD) will replace the 2002 Insurance Mediation Directive (IMD) that sets out the present regulatory framework for insurance brokers and other intermediaries and covers a broad range of insurance products, including life insurance with investment elements (so called unit-linked insurance). The IMD left European insurance markets fragmented, with significant inconsistencies in particular to information requirements. Aiming to raise consumer confidence in the aftermath of the financial crisis and to ensure a high level of consumer protection the Commission embarked on the revision of IMD. The Commission's proposal dates back to 2012 (IMD2)- see our summary here. The revised proposal was published on the 30th of June 2015, reflecting a compromise between the Parliament, the Council and the Commission.

Key features of the revised proposal

The Directive is renamed to reflect the wider scope of application (including insurance sold without the involvement of intermediaries).

The IDD complements the rules on the sale of investment products (MiFID II) and Regulation 1286/2014 on key information documents for package retail and insurance-based investment products (PRIIPS).

The IDD is a minimum harmonization directive.

The IDD will bring a number of benefits to European consumers:

• wider scope of application, covering the entire distribution chain, all sellers of insurance products, including insurance companies that sell directly to customers (without engaging an intermediary),
• greater transparency of the price and other costs, including an obligation to disclose whether the seller has an own incentive to sell the particular product,
• eased decision making and product comparison -insurance companies are obliged to hand over a standardized information sheet summarizing the basic coverage of the (non-life) insurance policy and the main exclusions before the contract is concluded, 
• additional rules for the sale of bundled products-consumers will now be able to buy the main good or service without the insurance product,
• stricter requirements for the sale of life insurance products with investment elements (packaged retail insurance-based investment products - PRIIPS).

The Commission welcomed the new proposal. "This agreement is good news for European consumers", said Jonathan Hill, EU Commissioner for Financial Stability, Financial Services and Capital Markets Union. "Consumers will benefit from greater choice and information when they buy insurance products, with more accountability and competition."

While the proposal has many positive features, highlighting two significant drawbacks, BEUC seems somewhat less content:

• sellers are not obliged to disclose the amount of fees and commissions they receive for selling insurance policies,
• the proposal fails to extend recently adopted investor rights like those on investment advice for life insurance products.

Monique Goyens, BEUC's Director General commented: "As with any investment products, small investors spend a substantial amount of money on life insurance policies in the hope that it will result in some saving. It is inexplicable that consumers taking out life insurance policies will be less protected than those opting for an investment fund."

In addition, we may also wonder whether non-disclosure of  the amount of fess and commissions will make price comparisons more difficult, negatively influencing competition and consumer choice, and making harder for European consumers to make informed decisions. Should we care how much we pay in fees and commissions as long as we get the promised cover? What do you think?

The core of insurance contracts and its transparency (ECJ in C-96/14)

Last Thursday, the ECJ published its decision in Van Hove v CNP Assurances SA (C-96/14). 

This is an important decision with reference to a number of issues in the field of unfair terms in consumer contracts, and namely:

- whether and under what conditions terms in insurance contracts defining the conditions under which a certain risk is covered are to be considered as exempted from control under unfair terms rules;

- what is required of insurers in order for terms and conditions of insurance policies to be considered transparent. 

Moreover, the decision incidentally raises, but does not answer, the question as to the relationship of pro-consumer interpretation of terms which are not clearly drafted and their possible unfairness. 

The facts in a nutshell The consumer had entered several contracts, in order to obtain credit and to secure payment of the loan in case he would become incapable of providing for that himself. The insurance contract, however, limited its coverage (for what is relevant here) to cases in which the insured person found herself "unable to take up any activity, paid or otherwise". After an illness, the claimant had been found unable to carry out his previous job, and therefore received a subsidy from the national social security. The insurance company, however, stopped covering his loan repayment after a while arguing that he would be able to undertake a different, if part-time, job. 

The legal question Mr Van Hove claimed that the clause limiting the policy's coverage was unfair. The insurance company, on the other hand, claimed that the term was exempted from scrutiny under French consumer law and Directive 93/13 as forming part of the contract's main subject matter; in particular, the term should also be seen as clear and comprehensible for the purposes of the exception set out in Article 4(2) of the Directive.  

The Court basically analysed the company's defenses. 

The answer It concluded that it is for the national court to ascertain whether the term is part of the contract's core in the case at stake (but, probably, this is indeed the case) and that the same court has to ascertain whether all in all the consumer was in a position to understand the consequences that the clause would have for him (which was probably not the case). 

More in detail As to the question whether the term should be considered as part of the contract's "core", the ECJ repeated that it is for the national judge to ascertain whether this is the case; under the Court's case-law (para 34), it cannot be excluded that a term like the one under scrutiny "will circumscribe the insured risk and the insurer’s liability and lay down the essential obligations of the insurance contract at issue" (para 36). The national court will have to take into account "the nature, general scheme and the stipulations of the contract and its legal and factual context" (para 37). 

Second and more interestingly, as to the question of transparency, the Court articulates a number of considerations which it is not easy to sum up in a consistent way. While the decisum requires 

"that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms,

so that, as articulated in previous judgments 

[the] consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it",

the Court's reasoning refers to a much broader set of circumstances and notions. 

First, it seems from the argument that also "the promotional material and information provided by the insurer in the negotiation of the insurance contract and, more generally, [...] the contractual framework" should be considered relevant in assessing the term's transparency.

Second, the court again makes reference to the "average consumer, who is reasonably informed and reasonably observant and circumspect" as the target of the required information provision. This reference, however, seems mitigated by the detailed requirements that the court sets to the end of finding that the consumer was indeed in a position to meaningfully assess the term (see, for both points, para 47). 

Furthermore, according to the Court (para 48), the fact that the insurance contract is part of a more complex stipulation should impose a higher transparency standard since "the consumer cannot be required, when concluding related contracts, to have the same vigilance regarding the extent of the risks covered by that insurance contract as he would if he had concluded that contract and the loan contracts separately".

Finally, the court concludes that, should the clause not fall within the "core terms" exception, the national court should also keep in mind that, where the wording of a contractual term is unclear, the interpretation most favourable to the consumer shall prevail. 

This decision, carefully analysed, brings to the surface the tension existing between unfair terms control as a remedy for specific cases of unfairness and the same tool as an instrument meant to more generally remove unfair terms from the market. Under the first approach, for instance, it makes sense to leave considerable leeway to the national court in assessing the term, to consider the complexity of the economic relationship and, most prominently, to refer to "promotional material and information provided by the insurance" in order to assess the term's transparency. If, on the other hand, unfair terms control must ensure that the market is cleared of unfair terms (which is, e.g., what the Court's case-law concerning the impossibility to reduce unfair terms suggests), although a certain degree of flexibility should be ensured for reasons of justice, incorporating all these factors significantly weakens the predictive- and therefore dissuasive- value of court precedents. 

As to the matter of interpretation recalled by the Court in its very last paragraph, it is unclear whether the sentence should be understood as a reminder for the case that the term is found as intransparent thus non-exempt, but not unfair- which would make it perfectly harmless- or as an indication as to how the term should be approached in view of assessing its fairness- which would open complications that are best left for a different discussion forum...

More information duties for insurance companies - CJEU in Nationale-Nederlanden Levensverzekering Mij (C-51/13)

29 April 2015: CJEU judgment in Nationale-Nederlanden Levensverzekering Mij (C-51/13)

The Third Life Assurance Directive (92/96/EEC) is no longer binding (currently in force is Directive 2009/138/EC - Solvency II) but it was a subject of the recent proceedings at the CJEU. Since the aim of the Directive was inter alia to ensure that consumers receive clear, accurate information on the essential characteristics of the insurance products, it established various minimum provisions for insurance companies and Member States to observe (see Annex II). The question posed by the Dutch court pertained the validity of general principles of Dutch law (such as: the duty of care of the insurance company, pre-contractual good faith and requirements of reasonableness and fairness) that oblige insurance companies to provide policyholders with more information than required by the Directive (in case: a summary or full overview of the actual and/or absolute costs and risk premiums, and their composition, deducted by the insurer in respect of the death risk cover). The CJEU determined that the Third Life Assurance Directive does not preclude such obligations, as long as the information provided to consumers is "clear, accurate and necessary for the policyholder to understand the essential characteristics of the commitment and that it ensures a sufficient level of legal certainty". Whether this is the case with regard to general principles of Dutch law, is for the referring court to ascertain. It seems that the information that consumers were missing in the case at hand (overview of the costs and risk premiums) should be seen as information that would be necessary for the policyholder to understand the essential characteristics of the life insurance policy and, therefore, the insurance company could be required by Dutch law to provide this information. It will be interesting to see whether the Dutch court considers general principles of Dutch law as a sufficient legal basis for ascertaining this obligation of the insurance company. After all, these general principles are open and unwritten and, therefore, insurance companies could have difficulties in foreseeing what additional information they would be obliged to provide in various cases and what the policyholder could expect from them.

Harmonisation of insurance contract laws?

Short after the Parliament's first reading vote on the Common European (now, Distance) Sales Law, the Commission might be starting a new contract law harmonisation challenge. 

Last Friday, indeed, the previously appointed Expert Group delivered its report on barriers to cross-border trade in insurance products.

Presenting the report, Commissioner Reding underlined how "only a few customers can buy insurance products in other countries, with just 0.6% of all motor insurance premiums and 2.8% of property insurance premiums offered across EU borders." 

The Group's main finding is that important differences exist in the contract law rules of especially life, motor and liability insurance products, which make it harder- and more expensive- for traders to offer "pan-european" products and for consumers/policyholders to take their insurance with them as they move between European countries. Of course rules outside contract law could also play a role in generating such barriers, but these rules remained beyond the Group's subject of investigation.

Unsurprisingly, the problem is found to be less severe in the large risks segment, where the cross-border dimension has been for a longer time usual business. 

Want to know more? You can take a look at the report.

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.

Solvency II on hold

Another new legislative proposal that has been pushed on the European Parliament's agenda is the suggested amendment to Solvency II Directive 2009/138/EC from 2009 (through Omnibus II Directive). On the European Commission's website we may still read that the proposed changes are likely to apply as of 1 January 2014. However, the vote in the European Parliament has been delayed by five months until 11 March 2014 and since by then the new European elections would be approaching, the election preparations may further delay the implementation of these rules ("Solvency II kicked into long grass"). The proposed changes were supposed to update the existing rules for the insurance companies regarding their supervision, financial reporting, finance techniques and risk management, among others making sure that consumers are protected due to insurers keeping enough money in reserve, proportionally to the risks they were underwriting. Since insurance companies do not hide their unhappiness with this proposal, on top of the news from the tobacco world, it is not hard to imagine that some heavy lobbying took place also in respect of this proposal to delay its adoption

.

Free medical assistance abroad not being enforced

The enforcement of European consumer protection rules is still less than ideal in many Member States. One of the benefits that was introduced for the Europeans was the European Health Insurance Card that enables Europeans to access free healthcare in public hospitals across the EU. This measure sounds very consumer-friendly, since, for examples, consumers travelling abroad for holidays and getting injured, while for example cycling or having (too much) fun in waterparks, could then get (more or less) immediate medical assistance without paying for it more than what their holidays cost. Unfortunately, it looks like one of the most popular holiday destinations in Europe - Spain - doesn't comply with the EU rules. Some of the Spanish hospitals refuse to accept the EHIC, which means that tourists still have to pay for medical help and only later may reclaim it from their insurance companies. The European Commission started now the infringement proceedings against Spain by asking Spain to provide more information on this issue. (EU warns Spain over hospitals' rejections of EU health card) In the meantime, European Commission could consider issuing more detailed information on how the EHIC is supposed to work to public hospitals (possibly through Member States), so that travelling Europeans did not have to face having to pay enormous medical bills while abroad. 

Financial complaints in the British Isles

The British Financial Ombudsman Service (FOS) published an annual report documenting its work in settling disputes between consumers and financial businesses (with issues ranging from mortgages and payday loans to mobile phone insurance or pet insurance). FOS is a free service for consumers and it's an independent organisation from the financial world. It is interesting to see that compared to the previous year an increase of 92% was noted in tackled cases. This data could suggest that consumers are more aware of their rights and more willing to complain or/and their trust in financial institutions decreased (this could be claimed due to spikes in complaints after financial scandals). On average, one in four initial inquiries went on to become a formal dispute (previous year: one in five) and in nearly half of these formal cases compensation was paid. The most of cases (74%) concerned complaints about the payment protection insurance (PPI) and four of the UK's largest banking groups accounted for 62% of all complaints. This data could point out continued failure of banks and other financial institutions to help consumers get the compensation they are entitled to. (Financial gripes reach 7,000 a day, says ombudsman)

"As levels of confidence in financial services have eroded, it is disappointing that we still haven’t seen any significant improvement in complaints handling. Too many financial businesses still seem unable to sort out problems themselves, without the ombudsman having to get involved." said Natalie Ceeney, chief ombudsman (Stronger consumer voice sees half a million people bring disputes)

Cross-border insurance contracts

Another interesting post from the European Commission last week revealed that it will be calling on experts to examine obstacles in the cross-border trade in insurance products. These barriers are often caused by different national laws governing insurance contracts and the European Commission plans to determine how big the differences between national contract laws are and whether they hinder cross-border use of insurance for European businesses and/or consumers. It is likely that the consultation would focus only on certain types of insurance, e.g., motor and travel insurance, life insurance. The schedule predicts that the results of this consultation would be known at the end of 2013 and further action plan could be drafted then. For call for applications see here. (open till 21 February 2013)

"(...) just 0.6% of all motor insurance premiums and 2.8% of property insurance premiums are offered to customers across EU borders (...)” said Vice-President Viviane Reding (Commission to examine legal obstacles to cross-border trade in insurance)

Insurance mediation

BEUC published a position paper on the plan of the European Commission to review the Insurance Mediation Directive (IMD). Consumers often report problems with regards to insurance being sold to them by intermediaries and they are especially vulnerable when concluding insurance contracts, due to the rarity of situations they encounter when they make use thereof, which prevents them from learning which insurance contract would fit them the best. Obviously, the insurance intermediaries would have a significant influence on consumers and their advice should be careful, well-thought through and of high quality. The improvements that are being sought in the IMD concern, among others: 

• an inclusion of a duty to act honestly, fairly and professionally, in accordance with the best interests of the customers;
• upholding the same level of protection regardless the distribution channel of the insurance;
• providing consumers with clear information about the status and remuneration of the insurance seller;
• disclosing the nature, basis and structure of the intermediary remuneration;
• prohibiting of tying practices;
• compulsory participation in procedures for impartial and independent out-of-court settlement of disputes.

Still, the BEUC considers the proposal not to be sufficiently progressive and argues that additional changes should be introduced, e.g.:

• broadening the scope of the IMD to cover all intermediaries selling insurances on an ancillary basis;
• prohibiting contingent remuneration linked to any targets related to the activities run by the intermediary (incl sales volume and number of claims reported);
• preventing conflict of interests by appropriate design of remuneration schemes and performance evaluations;
• obligation to disclose any remuneration related to the mediation activity;
• standardised information disclosure;
• training intermediaries by independent from insurance companies agencies, approved by competent authorities;
• obligation for intermediaries to assess their targeted public and suitability of the product for that public prior to distribution of investment insurance products.