The AFM points out defects in disability insurance products to insurers

The Netherlands Authority for the Financial Markets (AFM) started an investigation into the payment behaviour of insurers in August 2010, which investigation focused specifically on the field of disability insurance (AOV). This investigation did not provide the AFM with any indications that insurers structurally act without due care when establishing and paying AOV claims. In the context of payment behaviour, the AFM also included the various AOV products in the investigation.

In its final report entitled ‘Disability Insurance’, the AFM makes various recommendations to insurers to improve their products. An exploratory survey shows that not all products in this category satisfy the demands a consumer should be entitled to make. Insurers should therefore devote more attention to product development in order to act more in the interest of their clients. A number of them are already busy implementing concrete improvements.

Disability insurance products are financial products that provide income if the insured party is unable to work or unable to work fully in the event of illness or as a result of an accident. During the exploratory analyses, the AFM focused on this type of insurance for independent entrepreneurs. The risks are greatest for entrepreneurs, because they have to arrange for income themselves in the event of disability. This type of insurance concerns relatively high premiums, whereby it is of essential importance that the insurance satisfies consumers' expectations.

Client interest

The analyses shows that the majority of the insurers investigated also offer AOV products in addition to products that offer full coverage, which AOV products offer such comprehensive coverage that in the opinion of the AFM these offer very little to no added value to clients. The concerns for example AOVs that exclude large numbers of medical afflictions as standard, or significantly limit the term of payments. In addition, insurers hardly assume any responsibility for the quality of the advisers with whom they cooperate. AOVs have considerable impact and are complex products which place a significant duty of care on the shoulders of both advisers and insurers.

Several AOVs also contain components that are unnecessarily complex, which clients are unable to understand. There are, for example, product variants that only offer coverage for disability as consequence of serious illnesses, such as cancer. It is consequently incomprehensible for clients that a large number of forms of cancer are excluded within this coverage. It is the opinion of the AFM that insurers are not sufficiently led by the actual needs of the target group when developing and selling AOVs, and are led too much by the budget available to the client (or the lack thereof).

The AFM expects insurers to take steps that will lead to accessible products with added value and qualitatively sound distribution. A careful process when developing products should prevent bad products from being offered. Pursuant to the AFM analysis, a number of insurers has promised to implement concrete improvements.

Provision of information and distribution

The investigation also shows that the provision of information to consumers still leaves room for improvement. For example, none of the brochures investigated describes all relevant product characteristics. Consumers need an explanation of these product characteristics to thoroughly understand the product and assess it. The information in brochures and policy conditions are often not understandable either, for example as a result of the use of unclear terms and jargon.

In view of the often complex conditions and the failing provision of information, consumers are dependent to a large extent on the expertise and experience of the adviser. The AFM therefore considers it important that all parties set stricter requirements in respect of the quality of the adviser.

Moreover, the manner in which insurers reward advisers results in an incentive for the adviser to conclude an expensive AOV, even if this is not interest of the client. Insurers pay out approximately 18% of the premium as commission, irrespective of the amount of the premium. The AFM is consequently in favour of the upcoming prohibition on commissions, which will apply, inter alia, to AOVs, but the AFM is also of the opinion that insurers should already be taking steps at this time in order to realise a suitable reward for the distribution of their products before 2013.

Product development

The AFM has investigated the extent to which the client interest is central to the policy of insurers in the AOV market. In doing so, the AFM has examined whether the products and distribution satisfy the criteria of cost efficiency, usefulness, safety and understandability. The AFM considers it important that insurers also check the extent to which their products satisfy these criteria. Such a check should be part of an adequate product development process in the opinion of the AFM.

In order to be able to check AOVs, it is necessary for insurers to have an insight into the costs, damage, provisions and premium volumes per product. It turned out that six of the nine insurers lacked this insight entirely or in part. These insurers are therefore, in the opinion of the AFM, insufficiently able to check whether their products satisfy the criteria of cost efficiency, usefulness, safety and understandability.


The AFM observes that many insurers are willing to take steps. A number of them are already implementing concrete improvements. The AFM expects that insurers will succeed in the short term in actually placing their central focus on the interest of the client. Pursuant to this investigation, the AFM will contact the relevant insurers, the Dutch Association of Insurers and interest groups of independent entrepreneurs to follow-up the points for improvement that have been identified.

The AFM only has direct powers with respect to the insurers' provision of information. Recommendations concerning other aspects of the AOV product cannot be enforced, as is known, because the AFM does not supervise product development at the providers of financial products. However, the AFM will ask the insurers at a later stage how they dealt with the recommendations.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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