LIECHTENSTEIN Trends and Developments Contributed by: Alexander Ospelt, Lukas-Florian Gilhofer, Vivianne Auer and Laura Bayer, Ospelt & Partner Attorneys at Law Ltd
ing process. This includes evidence that costs and charges are properly identified, assessed, and jus- tified, and that they are not excessive. In addition, insurance undertakings are required to carry out appropriate and sufficiently robust product testing to ensure that the product delivers value for money for the target market over its entire lifetime. This obliga- tion is complemented by the requirement to conduct regular reviews of costs, investment performance, guarantees, coverage, and services. Products must also be classified according to their level of complex- ity, with the granularity of the target market definition reflecting the complexity of the product. For medium- and long-term products, insurance undertakings must ensure that the product meets the needs of the target market not only at the point of sale but throughout the full duration of the contract. As the needs, objectives, and characteristics of the target market may evolve over time, product testing must incorporate mechanisms to account for such changes. Target market The target market consists of a defined group of consumers sharing common interests, objectives, and characteristics. A specific target market must be identified for each insurance product, and the risks associated with that target market must be identified and assessed. In addition, a negative target market must be defined, identifying those consumer groups for whom the product is not suitable. The degree of granularity of the target market definition must cor- respond to the complexity of the insurance product: the more complex the product, the more detailed the target market definition must be. To determine product complexity, each product must be classified according to an appropriate complexity scale. Insurance undertakings are required to estab- lish clear criteria indicating the circumstances and factors considered when assessing complexity, as well as those characteristics which, from the manu- facturer’s perspective, inherently indicate a high level of complexity. The assessment of complexity must be based on the product’s essential features and func- tioning, including potential scenarios that may arise
in connection with the conclusion and performance of the insurance contract. The processes for determining the target market must incorporate appropriate methodologies, such as mar- ket research. Insurance undertakings must also docu- ment whether, and to what extent, adjustments to the product design or to the target market definition are required where testing indicates that the product may not be suitable over the medium to long term. Furthermore, insurance undertakings are required to assess the risks relevant to the respective target market. In the case of unit-linked life insurance prod- ucts, particular attention must be paid to cross-border risks, which must be expressly identified and taken into account. Costs and returns within product testing, product features, customer benefit, and scenario analyses Product testing must ensure that insurance products deliver appropriate value for money (VfM) for the target market throughout their entire life cycle. This requires a comprehensive, consumer-focused assessment of the interaction between costs, returns, and key prod- uct features, considering additional factors such as inflation where relevant. Insurance undertakings are required to apply struc- tured quantitative indicators to assess costs and per- formance, including surrender values relative to paid premiums, net returns (IRR), biometric risk benefits, and cost measures such as the Reduction in Yield (RIY). These indicators support both an understand- ing of product functioning and a robust demonstration that costs are proportionate to the benefits provid- ed. Surrender values should, at appropriate stages, exceed paid premiums, cost indicators should be kept as low as possible, and higher costs must be justified by clear added value for the target market. Beyond quantitative metrics, product testing must evaluate whether higher-cost features or additional services genuinely meet the needs, objectives, and characteristics of the target market under realistic scenarios. Product assessments must also reflect the specific conditions of the host Member State in which the product is marketed.
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