Navigating InsurTech: The digital intermediaries of insurance products and customer protection in the EU

A. Definition of insurance distribution and comparison websites as media

The comparison of insurance products ‘through a website or other media’ falls within the scope of the IDD ‘when the customer is able to directly or indirectly conclude an insurance contract using a website or other media’. ³⁷

This definition of insurance distribution includes both traditional comparison websites and the alternative models of comparison such as the price comparison apps for smartphones, and the data analyser services. ³⁸

The IDD refers to websites and other media, without providing a definition of the latter media. This may lead to the conclusion that the IDD – intentionally or otherwise – provides for the nonexhaustive list of the technical and organisational measures by means of which distribution services will be rendered. ³⁹ Thus, the apps fall within the definition of insurance distribution as media allowing the customer to compare insurance products and, directly or indirectly, conclude an insurance contract.

With reference to data analyser services, the mere provision of information on insurance products to potential policyholders is outside the scope of the IDD, where the provider does not take any additional step to assist in the conclusion of an insurance contract. ⁴⁰ However, data compared do not relate to the actual consumption pattern such as data analysers are doing for the mobile phone users. When applied to insurance products, data shall be referred to the customer’s risk profile and the service should replace or supplement the comparison based solely or mainly on the price. ⁴¹ Thus, the activity carried out by data analysers falls within the scope of the IDD when the customer is able to conclude the contract of insurance directly or indirectly. ⁴²

The conclusion is that all the entities who manage the websites or the other media offering the comparison of insurance products are insurance intermediaries when they allow the customer to conclude the contract of insurance directly or indirectly.

B. Information on websites and other media for comparison and their relationship with customers

The success achieved by comparison websites and other similar media depends on the perception of the comparison as trustworthy, impartial and transparent by customers. ⁴³

The entities providing insurance products to customers with comparison through websites or other media have to comply with the duties of disclosure introduced for insurance intermediaries by the IDD. ⁴⁴ These duties aim to increase the transparency on the ownership and the business model of the intermediary. The knowledge of this information should allow customers to appreciate the benefit of the comparison compared to distribution without comparison. Clear information about the website or media is in line with the purpose to avoid misleading information to customers. ⁴⁵

The IDD requires intermediaries to disclose whether a given insurance undertaking or parent undertaking of a given insurance undertaking has a holding, direct or indirect, representing 10% or more of the voting rights or of the capital in the insurance intermediary. ⁴⁶ The reference to indirect holding is important because it can happen that:

the intermediary managing the comparison is other than the owner of the website;

Nonetheless, commercial relationships between insurers and these intermediaries are also able to influence the comparison. ⁴⁷ Thus, the website should disclose these relationships as the IDD requests distributors of insurance products to: (i) act fairly and professionally in line with the best interest of their customers; ⁴⁸ and (ii) disclose the nature of remuneration received in relation to the insurance contract. ⁴⁹

Insurance intermediaries have to disclose the relationship they set up with the customer in relation to the contract proposed or advised upon. ⁵⁰ In addition to this information, intermediaries have to specify if the product is sold with or without the advice. When advice is provided, intermediaries have to specific if the advice is a personalised recommendation, ⁵¹ or if it is advice provided based on a fair and personal analysis ⁵² The IDD requires intermediary to provide information on advice before the conclusion of an insurance contract. ⁵³

EIOPA calls for explaining the meaning of expressions that comparison websites advertise like ‘Editor’s choice’, ‘Product of the week’, ‘Most popular’, ‘Compare the best insurers’, ‘Best buy’, and providing the information on which these are based (i.e. whether these are taken from a selection of affiliates only). ⁵⁴ It may be that some national jurisdiction allows qualifying the comparison of insurance products as falling under a duty to provide advice by the intermediary, when the comparison is offered together with these expressions or that the national law sets forth that the comparison always involves the provision of impartial advice.

Remaining at the level of European harmonisation, the expressions above could lead customers to take their decisions on the assumption that the intermediary is selling insurance by providing advice. The use of these expressions should be assessed, therefore, in line with the provisions of the Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market. ⁵⁵ Commercial communication including advertising and marketing is within the scope of this Directive. They reach the customer first and before the intermediary assumes the contractual obligation with a customer. Thus, these communications could affect customer’s decision to get in touch with the intermediary, that is, the customer believes that the comparison, which the intermediary performs, is based on a fair and personal analysis of customer’s needs.

C. Mis-selling and cross-selling

Comparing the prices of lemons to the prices of sugar is ‘nonsense’ unless a ‘sweet taste’ product satisfies the buyer’s interests and needs. The comparison is helpful and fair for the customer when the compared products have the same features and, therefore, their premiums are comparable: lemons with lemons and sugar with sugar.

Customers tend to over-rely on the price of products, rather than the underlying terms and conditions. ⁵⁶ Such a representation to the customer is misleading. The premium to be paid to the insurer is normally the result of the underlying terms and condition of the product because they regulate the ‘amount’ of risk actually transferred to the insurance undertaking. The lower the premium is, the less the risk underwritten by the insurer is.

IDD sets forth, as a general principle, that all the distributors of insurance products must act honestly, fairly and professionally in accordance with the best interest of their customers. ⁵⁷ Thus, a comparison in line with the provision above may exclude the cheapest products from being those satisfying the best interest of the customer. Contrariwise, customers could be available to pay higher premiums, whether customers are aware of the risk they continue to bear buying products with lower premiums.

To increase the awareness of customers on the risk allocation, the IDD aims at avoiding misselling. Thus, the IDD requires a demands-and-needs test based on the information obtained from the customer to support the sale of insurance products, regardless of any advice provided. Any product proposed shall be consistent with the customer’s insurance demands and needs. ⁵⁸

The proposal has to be presented to the customer in a comprehensible form with the relevant information about the insurance product to allow the customer to make an informed decision whilst taking into account the complexity of the insurance product and the type of customer. ⁵⁹

These standards impose the duty on intermediaries managing comparison websites or similar media to submit a detailed questionnaire to their customers to ascertain insurance interest and needs. Such intermediaries have also the duty to allow customers to select a balanced listing of product features other than price (such as type of guarantee, exclusions or limitation clauses) enhancing the list of criteria used for comparison, when necessary: The more complex a product, the more criteria (other than price) may need to be taken into consideration when comparing products. ⁶⁰ Consequently, the comparison must provide an outcome based on the questionnaire and consisting of a comparison of products based on criteria in line with the best interest of the customer and, therefore, focused on terms and conditions of the products rather than their premiums only.

The IDD deals with the cross-selling of insurance products, but only for the case of insurance products offered together with services or products that are not insurance. The IDD does not prevent the distribution of insurance products providing coverage for various types of risks (i.e. multirisk insurance policies). ⁶¹ However, the general principles to act fairly, honestly and professionally, in accordance with the best interest of the customers, apply to this practice.

The main concern arising from the cross-selling is the offering of products that merely ensure more profit for the intermediary and poor value for an unaware customer. This is the case of the opt-out mechanism for additional coverages because the customer may not be aware of both the pairing and the costs and charges of the additional component. The results from the comparison including policies that are not requested by the customer, which might alter the ranking as well as the matching with customer’s interests needs as previously assessed by the intermediary. Thus, the opt-out practice is likely to be scrutinised as unfair commercial practice because it is able to affect the customer decision. ⁶²

Contrariwise, the opt-in mechanism for additional covers allows comparison websites to neutralise these concerns because the opt-in is able to avoid the pairing of unsolicited policies presenting clearly the pair and requesting the customer to make a decision on the pair. Such decision is informed whether the intermediary: (i) provides additional covers consistent with the interests and needs of the customer; or (ii) displays the premium of each cover as additional to the premium of the main insurance coverage.

D. Conclusions

To sum up, the IDD is a minimum harmonisation directive with no rules specifically addressed to comparison websites, even though they are included in the scope of the IDD. The lack of specific rules does not mean that no rules apply to comparison websites. General principles and standards of the IDD are able to regulate most of the issues arising from these intermediaries, even though they have to be adapted to the peculiarities of the comparison. Furthermore, the Directive 2005/29/EC on unfair commercial practices can support the reaction to behaviours that are detrimental to customers.

However, national laws implementing the IDD as well as supervisory authorities should be aware they do not always approach comparison with websites or similar media as much as they do with other insurance intermediaries. Costumers perceive the comparison as impartial and the product with the lowest premium as the product that best suits their interest. Intermediaries who distribute insurance products through comparison websites or similar media should be subject to the obligation of impartial advice or, in any case, their relationship with the client should be qualified as such. Furthermore, a comparison complying with the general principle of acting in the best interests of the client cannot be limited to comparing the premiums of the products, but must also concern the terms and conditions of the products: Lemons must be compared to lemons, not to sugar.

A. Customer protection and the broker model of P2P insurance

The broker-model of P2P insurance can have detrimental results to customers from several angles.

The insurance premium is the price paid by a policyholder to get coverage from the insurer. An insurance broker collects money from customers, and this money is qualified as a ‘premium’ because it corresponds to a legal obligation from the insurer. Most of the money collected under the broker model of P2P insurance, however, does not flow to the insurers involved in this model – the third-party insurer for claims above the deductible limit and the insurer covering if the group pool happens to be empty – because it feeds the group fund. This ‘money pool’ ⁶⁸ created from the contribution of a group of individuals does not match any obligation from insurers and, therefore, the money only flowing to the group fund cannot be qualified as an insurance premium.

The IDD lists a number of forms to protect customers against the inability of the insurance intermediary to transfer the premium to the insurance undertaking or to transfer the amount of claim or return premium to the insured. ⁶⁹ All these forms assume the intermediary collects insurance premiums. Thus, the money flowing to the group fund does not benefit from the protection for insurance premiums.

The IDD requires brokers to hold professional indemnity insurance covering liability arising from professional negligence. ⁷⁰ The collection of money not aimed at providing insurance coverage, i.e. guarantee issues by an insurance undertaking, is an activity that may not be included in those allowed to the broker under national laws. The professional indemnity insurance does not cover this activity and the broker’s liabilities other than those for insurance intermediation must be negotiated with the insurer to be included in the indemnity insurance.

The broker could invest the money flowing to the group fund, fully or partially, in assets. Brokers are outside the scope of prudential regulation. They do not underwrite any risk and, therefore, they do not have to match the liabilities with assets. Thus, brokers do not have to invest premiums into assets in accordance with the Principle of Prudent Person, as insurance undertakings must do. Insurance authorities do not supervise these investments and, therefore, customers cannot rely on prudential rules aiming to preserve the solvency of a group fund.

The broker-model of P2P insurance seems to embed a conflict of interest as well. Damages below the deductible limit are paid out of the group fund. A conflict of interests may arise with the customer because the broker manages the group fund and could have an interest in not depleting it. Thus, the broker acts as the counterpart of the customer when deciding on the acceptance of the claim, that is, to make the settlement or to refuse it.

The broker-model could be also in contrast with competitiveness.

Policyholders get their share refunded from the group pool or credited towards the next policy year. The policyholder is discouraged from seeking the renewal of the insurance coverage with other insurers if the options are not alternative to each other and the second is the only option allowed. The policyholder would lose the credit toward the previous insurer by deciding to sign the policy with the new insurer. Contractual mechanisms, which prevent (or are disincentive to) change by the insurer, cannot achieve customer loyalty. Customer protection and competition between insurance distributors call for the freedom of choice between the credit for the renewal of the policy and the refund from the group fund. The same applies to any contractual clause crediting the refund towards products or services other than insurance when a broker or related companies offer these products/services to policyholders.

Finally, the broker-model of P2P insurance raises some concerns about compliance with compulsory insurance coverage.

Some of these insurance payouts, for example, motor third-party liabilities, are imposed trusting in the rules on solvency and handling of claims, with which the insurance undertakings are required to comply. There are also several compulsory insurance schemes with public intervention. ⁷¹ They request a contribution to a collective pool when transferring a risk that falls into the scheme to the insurance market. Insurers are responsible to withhold the contribution from the premiums and pay them to the collective pool when underwriting these risks.

Under the broker model, customers buy a mixture of insurance coverage provided by insurers and protection delivered with the group fund by the broker. This combination falls outside the insurance model assumed by the rules introducing these compulsory insurances. Compliance with the objectives, safeguards and contributions required by laws when imposing these compulsory insurances must be assessed.

B. Is P2P insurance an activity for insurance intermediaries?

Considerations made in the previous section assumed that broker carries out an activity of insurance intermediation when managing P2P insurance. This assumption, may not be true, however, because the broker model of P2P insurance could result in an incentive to carry out insurance business without being subject to solvency and governance rules as laid down for insurance undertakings by Solvency II. Supervisory authorities should carefully scrutinise the broker model of P2P insurance to avoid regulatory arbitrages. ⁷² The same rules should apply to the same risks.

The structure of the broker model of P2P insurance allows identifying critical elements overlapping with the main features of the business reserved to the insurance undertakings. The insurance business essentially consists of: (i) calculating the premiums and underwriting the risks in accordance with actuarial and statistical criteria; (ii) the financial management of the premiums collected; and (iii) the settlement of claims. The broker-model of P2P insurance can embed all these elements.

Broker determines the premiums to be paid by customers and allocates the risk between the group fund and the insurance undertakings. It is reasonable to assume that the broker calculates the premiums to be allocated in the group fund based on the same actuarial and statistical criteria of the insurance undertakings. Moreover, the broker splits the risk between the group fund and other underwriters – the third-party insurer for claims above the deductible limit, and the insurer covering if the group pool happens to be empty – as insurance undertakings do with other insurers (co-insurance) and/or reinsurers.

Broker manages the premiums flowing to the group fund. This money may remain deposited in a bank account or be invested. The bail-in procedure is in case of bank’s default; ⁷³ it is an incentive for the broker to invest well in the insurance undertakings as they are obliged to do under the Prudent Person Principle.

The broker makes the settlement of the claims as an insurance undertaking. Broker decides whether the conditions exist to acknowledge the benefit and provides directly by withdrawing the corresponding sums from the group fund or by requesting them from the insurers. As outlined earlier, the broker becomes the customer’s counterpart at the time of the claim in the same way as an insurance undertaking would operate, if the broker does not want to deplete the group fund or avoid higher premiums at the renewal from insurers.

These considerations lead to affirming that the grouping of persons exposed to the same risk is very close to the concept of mutual insurance when the policyholders can get insurance coverage near cost, because any refund from the group fund represents excess premium payments. On a theoretical level, the idea that insurance regulation must get over the paradigm of the traditional insurer who is the sole designer of its ready-made mass products and embrace the notion that insurance customers will be increasingly called upon to play an active role in putting together their own tailor-made insurance products – with the assistance of and by means of new tech-based instruments ⁷⁴ – appreciable.

However, Solvency II lists a number of entities operating in life and non-life insurance, which are excluded from the scope of such Directive. Mutual undertakings are already outside the scope of Solvency if they meet certain requirements. ⁷⁵ None of the P2P insurance start-ups decided to conform its activity to the requirements so as to be exempted from Solvency II, however. The suspicion that P2P insurance carried out by entities other than insurance undertakings is able to circumvent the standards – and costs – of Solvency II, remains. Future research should demonstrate that the requirements for exclusion from Solvency II are no longer current and need to be changed to embrace the true needs of the customer.

A. Robo-advice falls within the scope of the IDD

The rendering of robo-advisory services on insurance contracts presupposes that insurance distribution subject to an authorisation requirement is carried out.

According to the IDD, ‘the activities of advising on, proposing, or carrying out other work preparatory to the conclusion of contracts of insurance, of concluding such contracts,[…]’ fall within its scope. ⁷⁷ The IDD does not distinguish according to whether the insurance distributor uses automatic processes, or on the tool used to approach potential customers. Thus, a legal or natural person providing robo-advice through algorithms has to be authorised to carry out the distribution activity whether the conditions for being included in the definition of insurance distribution are met or not. As a result, this person shall comply with the organisational rules and business conduct rules established for the distribution of insurance products.

Furthermore, the IDD provides a definition of advice as ‘the provision of a personal recommendation to a customer, either upon their request or at the initiative of the insurance distributor, in respect of one or more insurance contracts’. ⁷⁸ The advice can be on a ‘basic’, ⁷⁹ ‘advanced’ ⁸⁰ or ‘on-going basis’. ⁸¹ However, if the advice is not provided, any contract proposed must be consistent with the customer’s insurance demands and needs. ⁸²

Finally, the Commission Delegated Regulation (EU) 2017/2359 of 21 September 2017 supplementing the IDD with regards to information requirements and conduct of business rules applicable to the distribution of IBIPs, ⁸³ specifies that the insurance intermediary’s or insurance undertaking’s responsibility shall not be reduced due to the fact that advice on IBIPs is provided in whole or in part through an automated or semiautomated system, because such systems are providing personal investment recommendations, which should be based on a suitability assessment. ⁸⁴ This standard refers to IBIPs. It aims at ensuring recommendations to the customer or potential customer that these products are suitable for that person and, in particular, they are provided in accordance with that person’s risk tolerance and ability to bear losses. ⁸⁵ Nevertheless, this standard is a mere specification of the general principle under which distributors must always act in accordance with the best interest of their customers. ⁸⁶ Such principle is without exception, concerning neither the tool used to carry out the relationship with customers by the distributor, nor the insurance products distributed.

In conclusion, the IDD provides standards on both the intermediaries and the advice, which apply also to those who are carrying out their activity through the provision of robo-advice. ⁸⁷

Some concern is already arising on how to assess whether such robo-advisers comply with the general principles to act fairly, professionally and honestly at all times, in accordance with the best interest of their customers. ⁸⁸

The following sections investigate the standards of the IDD that apply in the case of insurance distribution through robo-advice. Compliance with the general principles will be evaluated grouping the IDD’s standards for distributors of insurance products into two categories:

organisation of the intermediary;

B. The organisational rules for intermediaries providing robo-advice

The robo-advice to the customer is the outcome of the activity performed by algorithms and it is the preliminary step towards the conclusion of the contract of insurance. Because the quality of the advice depends on the architecture of the algorithm only, this architecture is part of the organisation of the intermediaries/distributors providing robo-advice.

The IDD requests the relevant persons within the management structure of insurance intermediaries (and insurance undertakings) who are responsible for distribution, to demonstrate the knowledge and ability necessary for the performance of their duties. ⁸⁹ This requirement is independent of a distribution carried out through robo-advice or in the traditional way because it generally pertains to the intermediary’s organisation. ⁹⁰ In the case of distribution through robo-advice, relevant persons should demonstrate: (i) an adequate understanding of the technology and algorithms used to provide robo-advice on the insurance products; and (ii) the ability to review the automated advice generated by algorithms. ⁹¹ These skills and knowledge are essential because such persons have the duty to ensure the automated processes based on algorithms – that is, the activity of insurance distribution – are complying with the main objective of the EU insurance regulation and supervision: customer protection.

Intermediaries providing robo-advice are responsible for the design and functioning of the algorithms as they employ this set of mathematical instructions or rules to carry out their economic activity whilst having to ensure that they always act honestly, fairly and professionally in accordance with the best interest of their customers. ⁹²

On the other hand, the use of algorithms increases the scale of the advice because of its predictability and uniformity. A well-designed algorithm prevents damage to all customers, but a poorly designed algorithm causes damage to almost all customers. ⁹³ The advice of the algorithm is more predictable than human advice because it merely depends on the processing of the algorithm. Moreover, the algorithm delivers the same advice when processing the same inputs, regardless of the number of customers. At the opposite, the greater the number of people engaged in providing advice by the same intermediary, the higher the probability that advice will be different to customers with the same interests and needs. Advice provided by a natural person is less predictable than the algorithm, but it is unlikely that it affects all customers.

The scale of robo-advice raises, therefore, some concerns about the organisational requirement of the professional indemnity insurance of intermediaries or other comparable guarantee against liability arising from professional negligence. ⁹⁴ The aggregate amount per year for all claims has been calculated having in mind the distribution carried out through natural persons rather than robo-advice. Thus, the scale of robo-advice should prompt a rethinking of this amount. ⁹⁵ Moreover, the insurance undertakings that take on full responsibility of the intermediaries must reflect this scale in the qualitative–quantitative determination of the risks to which they are exposed. In addition, insurers, when providing additional professional indemnity insurance to intermediaries who are carrying out their activity through robo-advice, must consider the scale of the advice. ⁹⁶

C. The quality of robo-advice: Standards and supervision

Intermediaries must specify the nature of the advice provided to the customer. ⁹⁷ This standard requests both design and functioning of the algorithm to be in line with the nature of the advice the intermediary is under obligation with the customer to provide. Thus, the algorithms must work properly managing the conflicts of interests as laid down by IDD. ⁹⁸ In any case, before the conclusion of an insurance contract, the insurance distributor shall specify the demands and the needs of the customer based on information obtained from that customer. ⁹⁹

The IAIS outlined the customer might not have the opportunity to ask questions when interfacing with intermediaries providing robo-advice, unless the robo-advice is programmed in a robo-chat. ¹⁰⁰ The lack of interaction between humans might also lead to a reduced detection of contradicting answers by customers, and recognition of when the customer is in doubt. ¹⁰¹

The EU law allows evaluating these concerns by recalling the Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the General Data Protection Regulation, or GDPR). ¹⁰²

According to the definitions of the GDPR, the intermediary providing robo-advice is a data controller, ¹⁰³ and the robo-advice includes data provided by the data subject, ¹⁰⁴ that is, the customer. GDPR requests the data controller to implement suitable measures to safeguard the data subject’s rights, freedoms and legitimate interests in the case of decisions based solely on automated processing, including profiling, which produces legal effects concerning the data subject, or similarly affects him or her. ¹⁰⁵ These rights include at least the right to obtain human intervention on the part of the controller, to express his or her point of view, and to contest the decision, even when the data subject provides explicit consent to the automated decision. ¹⁰⁶

The IDD requests any contract proposed to the customer to be consistent with the customer’s demands and needs, regardless of the provision of advice. Thus, the demands-and-needs test consists in providing the customer with objective information about the insurance product in a comprehensible form to allow the customer to make an informed decision. ¹⁰⁷ Such a decision can be qualified as being informed whether the design and functioning of the algorithms take duly into account doubts and contradicting questions of the customers, such as human advisors have to do when they are providing the basic, advanced or ongoing advice.

The IAIS calls supervisors to consider how to measure and verify the quality of the advice provided when they develop guidelines on the use of digital technologies in insurance. ¹⁰⁸ A knowledgeable data processing model of the algorithm allows supervising the distributors and preventing a uniform and predictable advice that is potentially detrimental to customers. Supervisory authorities can carry out this supervision directly, but the IDD introduced also indirect supervision.

In the case of direct supervision, the most relevant challenges to the supervisory authorities do not appear to be insurance-specific. Two examples would be that of the European non-discrimination law ¹⁰⁹ and data protection law. ¹¹⁰

With specific reference to insurance regulation, the quality of advice cannot be assessed as separated from the awareness of the outcomes deriving from the algorithm. This awareness must be ascertained not only by the insurance intermediaries who carry out their activities through robo-advice, but also by the insurance undertakings that have selected this distribution channel – or tool, in the case of direct distribution – as adequate to sell to the target market embedded in the products they have manufactured. If the distributors have no prior awareness of the possible outcomes of the algorithm they use, entities without the requirements to carry out the insurance distribution, e.g. software houses, would, in fact, carry out this activity. Ultimately, these entities would decide what is in line with the best interest of customers, without being authorised to do so. This would be in contrast with the IDD, as the activity of insurance distribution is reserved for persons authorised because they are in possession of fit and proper requirements, ¹¹¹ and insurance undertakings can only use such persons to distribute insurance products. ¹¹²

Supervisory authorities are requested to supervise on robo-advice also indirectly. The IDD introduced a set of rules on product oversight and governance (POG), which aims at anticipating customer protection by predicting potential detriments embedded in the manufacturing of the products and preventing their occurrence, rather than by requiring intervention from supervisory authorities after products are sold. ¹¹³

The rules on POG link the design of the product to its distribution. They have been detailed by Commission Delegated Regulation (EU) 2017/2358 of 21 September 2017 supplementing the IDD with regard to POG requirements for insurance undertakings and insurance distributors. According to this Delegated Regulation, manufacturers ¹¹⁴ shall carefully select distribution channels that are appropriate for the target market providing insurance distributors with all appropriate information on the insurance products, the identified target market and the suggested distribution strategy, including information on the main features and characteristics of the insurance products, their risks and costs, including implicit costs, and any circumstances that might cause a conflict of interest to the detriment of the customer. ¹¹⁵ Distributors are requested to have in place product distribution arrangements to: (i) prevent and mitigate customer detriment; (ii) support a proper management of conflicts of interest; and (iii) ensure that the objectives, interests and characteristics of customers are duly taken into account. ¹¹⁶ Thus, manufacturers and distributors need to have in place distribution mechanisms that aim at ensuring a flow of information and consistent distribution strategies between them. ¹¹⁷

In the case of robo-advices, manufacturers have to monitor how algorithms process their products when they are distributed by the intermediaries that manufacturers have selected as being adequate for distributing through this tool. Intermediaries must be aware of it too, whether they want to comply with their duties to distribute the product in accordance with the best interest of their customers or to monitor and report the proper distribution of the products to the manufacturer.

Supervisory authorities, therefore, have to supervise on the reasons leading to select intermediaries who intend to carry out the distribution through robo-advice, or to the use of robo-advice in the case of direct distribution by insurance undertakings. Furthermore, supervisors have to check the flow of information between manufacturers and distributors in relation to the distribution of the products through robo-advice, and to ensure that the on-going awareness product matches the interest and the needs of the target market embedded in its design.