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Erscheinung:16.07.2025 BaFin examines insurance advice
A mystery shopping exercise by BaFin has found irregularities in the sale of insurance-based investment products by some German insurers as well as in the advice they provided.
A mystery shopping exercise by BaFin that examined six insurers found that not all of them asked the mystery shoppers about their investment wishes and needs. Only around half of the insurers documented whether a recommended product was actually suitable for the mystery shoppers concerned. Furthermore, the advice documents were often hard to understand. However, the mystery shoppers rated the information on the risk level and on the recommended holding period positively.
BaFin’s mystery shopping exercise was part of an international campaign coordinated by the European Insurance and Occupational Pensions Authority (EIOPA). It focused on the services provided in the sale of insurance-based investment products.
Focus on advice provided
To conduct the exercise, individuals acting on BaFin’s behalf played the role of mystery shoppers seeking to purchase insurance-based investment products (see info box). The aim was to check whether the insurance distributors provided comprehensive advice and recommended products that matched the mystery shoppers' pension planning and investment objectives.
In particular, BaFin checked whether the insurance distributors complied with the advisory, information and documentation requirements that are set down in various laws, in particular the German Insurance Contract Act (Versicherungsvertragsgesetz – VVG), Delegated Regulation (EU) 2017/2359 regarding insurance-based investment products and the German Regulation on Information Obligations for Insurance Contracts (Verordnung über Informationspflichten bei Versicherungsverträgen – VVG-InfoV). The exercise also examined whether the obligations under the Disclosure Regulation (Regulation (EU) 2019/2088) had been met.
At a glance:Mystery shopping exercise for insurance-based investment products
Between March and June 2024, BaFin’s mystery shoppers underwent 72 consultations with six insurance companies and their sales partners and concluded contracts for insurance-based investment products. The contracts were cancelled after each consultation.
The following sales channels were examined:
- Insurance distributors working exclusively for one insurance company (tied agents).
- Products sold by banks (bank sales of bancassurance).
- Insurance distributors employed directly by the insurance companies (employed sales force).
Two mystery shopper profiles were created to reflect differing needs. Both profiles consisted of people aged between 30 and 50 seeking a secure investment that would be held for a period of 10 to 15 years. Furthermore, both groups had little experience with financial products. The only difference was that profile 1 did not need much liquidity and preferred sustainable investments. Profile 2, however, needed a high level of liquidity and had no preference for sustainable investments.
The data sample was relatively small, consisting of only six test objects. It provided BaFin with what is at best a snapshot. As with any mystery shopping exercise, the results should not be understood to apply to the entire German financial sector.
Mystery shopping exercises provide BaFin with a direct glimpse of market realities – unlike complaints from consumers or evaluations of audit reports, which only offer BaFin an indirect impression.
Not all relevant information was requested
Insurance distributors are required to ask customers about their wishes and needs (customer exploration) and advise them accordingly. Customer exploration is a vital part of any consultation. The purchases made by the mystery shoppers revealed considerable shortcomings in this regard. The insurance distributors often failed to request important information or only asked for it in passing. The required information includes customers’ previous experience with investment products as well as their financial situation, investment objectives, desired investment duration, risk appetite, liquidity requirements and personal sustainability preferences.
A further problem was the discrepancies between the subjective perceptions of the mystery shoppers and the details documented in the investment advice minutes. There were frequent disparities between the information provided by the mystery shoppers and the documentation in the advice minutes. In some cases, these details even contradicted each other, e.g. with regard to risk appetite. In addition, the mystery shoppers were often insufficiently informed about the topic of sustainability, although this is a requirement for insurance-based investment products.
Multi-option products and sustainability in the spotlight
The majority of the contracts concluded (68 out of 72) were multi-option products. These products give customers options on how to invest part or all of their contributions, e.g. in various investment funds. Only four contracts were concluded for conventional insurance-based investment products that do not provide the option of choosing specific investments. Instead, the insurer invests the contributions in its general investment portfolio. Overall, the maturity periods agreed tended to be longer than originally requested.
53 of the 72 contracts concluded had investment components with sustainability characteristics. Half of the mystery shoppers expressed a preference for sustainable products without being prompted.
Improvement needed in the area of costs
In the majority of the consultations, the mystery shoppers were informed about the expected returns (94% of cases) and the level of risk (81% of cases).
The expected returns after costs often fell short of the 2% target sought by the mystery shoppers, while the costs ranged from 0.71% to 3.29% annually. These costs were only discussed in around two thirds of the consultations.
Unclear documentation
The advisory and contractual documents often extended to over 200 pages, in some cases surpassing 400. They were often hard to understand and, in some cases, were misleading. For example, it was not always clear which offer the key information document related to.
Distributors often failed to provide obligatory information, such as the key information document, the statement regarding sustainability risks and the advice documentation. In some cases, these documents were only provided after customers stated their willingness to conclude a contract (see Figure 1).
Figure 1: Documents provided most frequently
BaFin
Suitability of products often unclear
Insurers are only allowed to recommend insurance-based investment products to customers if the products are suitable for them. The information obtained in the customer exploration phase is vital for assessing the suitability of insurance-based investment products.
The insurance distributors documented product suitability assessments in only about half of the cases. A mere 19 out of 72 contracts fulfilled the EIOPA criteria relating to returns, risk and sustainability. In numerous cases, it was not possible to state with certainty whether the products were suitable with a view to the criteria of expected returns and risk class.
How BaFin will use the results
BaFin’s mystery shopping exercise examined whether the tested insurance distributors fulfilled the relevant legal requirements when selling insurance-based investment products. BaFin will contact the companies at which discrepancies were found in order to single out and rectify any systemic shortcomings.
