LIECHTENSTEIN Trends and Developments Contributed by: Alexander Ospelt, Lukas-Florian Gilhofer, Vivianne Auer and Laura Bayer, Ospelt & Partner Attorneys at Law Ltd
For complex or higher-risk products, manufactur- ers are expected to conduct scenario and sensitiv- ity analyses to assess how changes in assumptions, costs, risk profiles, or recommended holding periods affect the product’s risk–return profile and value devel- opment. Where appropriate, stochastic modelling may be used to quantify risks and support decision- making. Overall, product testing and scenario analy- sis together must demonstrate that products offer sustainable and appropriate value for money for the intended target market over time. Consideration of selected aspects in the manufacture of products When designing insurance products, insurance under- takings must take into account specific factors that may materially affect customer benefit and value for Where it can be expected that a significant proportion of the target market will cancel contracts before the end of the savings phase, this must be reflected in the assessment of customer benefit. Scenario analy- ses should incorporate realistic cancellation assump- tions for typical contract constellations and identify the point in time at which early termination is likely to occur. From that point onward, the product must continue to provide adequate customer benefit for consumers who cancel. For products with recurring premiums, analyses must also consider premium pay- ment compliance, not solely contract persistence. For long-term products, VfM assessments are typically conducted around half of the recommended holding period, with average contract endurance serving as money for the target market. Cancellation and persistence In unit-linked life insurance, insurance undertakings may receive rebates from fund providers, typically derived from fund management fees. High manage- ment fees may undermine customer benefit and therefore require careful scrutiny. Where rebates are paid, insurance undertakings must assess whether such arrangements create inappropriate or inadmis- sible incentives, such as favouring funds with higher rebates or applying differentiated commission rates. Rebates must be appropriately reflected in prod- an alternative reference metric. Rebates and conflicts of interest
uct design, for example through reduced premiums or surplus-sharing mechanisms, and must deliver a demonstrable benefit to consumers. Insurance under- takings also remain responsible for ensuring compli- ance with any applicable disclosure and rebate sur- render obligations. Ongoing product monitoring Insurance undertakings must conduct regular reviews and continuous monitoring to ensure that products always meet the needs, objectives and characteristics of the target market. Monitoring must identify events that materially affect product features, risk cover- age, guarantees, or overall value, including changes in macroeconomic conditions, inflation, investment strategies, or cost structures. Both ad hoc and struc- tural developments may trigger product reviews to ensure continued added value for consumers. Prod- uct monitoring should be supported by appropriate quantitative and qualitative indicators, such as costs, investment returns, cancellation and loss ratios, com- mission levels, application and claim rejection rates, and consumer complaints. Clear thresholds for inter- vention and corresponding remedial measures must be defined to enable early identification of issues and timely action. Monitoring should take into account both external factors (eg, legal, tax, economic, or reg- ulatory changes) and internal factors (eg, complaints, litigation, reputational risks, or distribution changes). Conflicts of interest, misguided incentives Insurance undertakings and intermediaries must implement appropriate organisational and admin- istrative measures to identify, prevent, and manage conflicts of interest in insurance distribution at an early stage. Such conflicts may arise between insur- ers or intermediaries and consumers, between affili- ated entities and consumers, or among consumers themselves. In the distribution of insurance-based investment products, permanent and proportionate organisational arrangements are required, supported by written policies that reflect the nature, scale, and complexity of the undertaking. These policies must clearly describe how conflicts – particularly those linked to remuneration – are identified, mitigated, and, where necessary, escalated. Where existing measures are insufficient, firms are required to introduce alterna- tive safeguards. Disclosure of conflicts to consumers
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