GFSC Guidance Note on Insurance Product Oversight and Governance Technical Standards

Version: 2 Publication Date: 28/03/2025 www.gfsc.gi GFSC Guidance Note Insurance Product Oversight and Governance

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 2 internal model requirements for insurers Table of Contents Contents .........................................................................................................Error! Bookmark not defined.

1. Introduction..................................................................................................................................... 3
2. Manufacture of insurance products................................................................................................ 4
3. Distribution of insurance products.................................................................................................. 7
4. Additional expectations for all Manufacturers and Distributors of insurance products ................ 7
5. Guidance for Manufacturers who are also Specified Providers...................................................... 8
6. Guidance for Distributors who are also Specified Providers......................................................... 12
7. Guidance relating to legacy N-II Products specific to Specified Providers.................................... 14
8. Additional expectations for Manufacturers and Distributors who are Specified Providers in relation to value measures data................................................................................................................. 14

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 3 internal model requirements for insurers

1. Introduction 1.1 This Guidance Note sets out the GFSC’s expectations of firms that fall within scope of the Financial Services (Insurance Product Oversight and Governance) (Technical Standards) Regulations 2024 (the “Technical Standards”) 1 . 1.2 The Technical Standards apply to: • insurance undertakings and insurance intermediaries that manufacture insurance products that are offered for sale to customers (“Manufacturers”); and • insurance distributors that advise on, or propose, insurance products that they do not manufacture (“Distributors”). 1.3 Sections 2 to 4 of this Guidance Note apply to all Manufacturers and Distributors. 1.4 Sections 5 to 8 apply only to Manufacturers and Distributors that are considered Specified Providers (“Specified Providers”). 1.5 “Specified Provider” is to be interpreted in accordance with Regulation 7(3) of the Financial Services (Core Principles and Consumer Duty) Regulations 2024. Guidance on the application of this provision is set out in paragraph 1.9 of the Consumer Duty Guidance Note. 1.6 This Guidance Note is intended to complement existing legislation, policies and guidance and is not intended to conflict with, amend or supersede them. It should be read in conjunction with the: • Technical Standards; • Financial Services (Insurance Distribution) Regulations 2020 (the “IDD Regulations”)2 ; • Financial Services (Core Principles and Consumer Duty) Regulations 20243 ; • GFSC’s Consumer Duty Guidance Note; • GFSC’s Guidance Note on the Fair Treatment of Vulnerable Customers; and • GFSC’s ’Approach to Insurance Regulation’4 . 1.7 The Technical Standards revoked Gibraltar’s on-shored version of EU Commission Delegated Regulation (EU) 2017/2358 with regard to product oversight and governance requirements. The Delegated Regulation’s provisions are restated in the Technical Standards with the amendments necessary to address deficiencies relating to Gibraltar’s withdrawal from the European Union. 1.8 This Guidance Note provides guidance on the Technical Standards and their supplemental effect on Regulation 18 of the IDD Regulations. 1.9 Product oversight and governance refers to the systems and controls a firm has in place to design, approve, market and manage products throughout their lifecycle in order to ensure they meet the relevant legal and regulatory requirements. 1 https://www.gibraltarlaws.gov.gi/uploads/legislations/financial￾services/2024s078/2024s078.pdf#viewer.action=download 2 https://www.gibraltarlaws.gov.gi/uploads/legislations/financial-services/2020s015/2020s015(07-09- 23).pdf#viewer.action=download 3 https://www.gibraltarlaws.gov.gi/legislations/financial-services-core-principles-and-consumer-duty-regulations￾2024-7324 4 https://www.fsc.gi/publications/2019/05/Approach%20to%20Insurance%20Regulation.pdf

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 4 internal model requirements for insurers 1.10 Good product governance should result in products that: • meet the needs of customers in one or more identifiable target markets; • are sold to customers in the target markets by appropriate distribution channels; and • deliver appropriate client outcomes. 2. Manufacture of insurance products 2.1 The following guidance supplements Regulation 18(1) of the IDD Regulations and Chapter 2 (Product Governance Requirements for Manufacturers) of the Technical Standards. This applies to all insurance undertakings and distributors. Product governance arrangements 2.2 In accordance with Regulation 18(1) if the IDD Regulations, a Manufacturer must maintain, operate and review a process for the approval of: • each insurance product; and • significant adaptions of an existing insurance product, in each case before it is marketed or distributed to customers. 2.3 Whether a proposed change to the product would be a ‘significant adaptation’ should include consideration of the potential impact the adaptation may have on an existing or potential customer (when compared to the un-adapted version of the product). 2.4 A ‘significant adaptation’ in relation to a non-investment insurance product (“N-II Product”) may include, but is not restricted to, a proposed change to the insurance coverage, costs, exclusions, excesses, limits or conditions and any other significant change to the terms and conditions. 2.5 In accordance with Regulation 18(2) of the IDD Regulations, the product approval process must be proportionate and appropriate to the nature of the insurance product. 2.6 Manufacturers should take into account the following when considering whether the product approval process is proportionate and appropriate: • the complexity of the insurance product; • the degree to which publicly available information can be obtained; • the nature of the insurance product and the risk of consumer detriment related to it; • the characteristics of the target market; and • the scale and complexity of the relevant business of the Manufacturer or Distributor. 2.7 In addition to the factors set out in paragraph 2.6 for a N-II Product, a firm should take into account: • the potential risk, and possible levels, of harm to customers if the product design is flawed, in particular, due to the potential scale of harm if the product is intended for a wide target market; • the nature of the cover that the product is intended to provide;

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 5 internal model requirements for insurers • whether the distribution arrangements could mean customers are at a greater risk of not receiving fair value from the insurance product, for example where:

• the insurance product will be distributed with additional products;
• where the insurance product will be distributed on an ancillary basis to another product; or
• there is complexity in the distribution arrangements including the use of multiple parties in the distribution chain or reliance on unregulated persons when selling the insurance product; • the nature and complexity of the firm’s existing or intended customer base, for example whether it includes or is likely to include:
• different types of customers with varying characteristics including in relation to their understanding of financial matters;
• a significant number of vulnerable customers;
• a significant number of customers of long tenure; and • any particularly notable features of, or relating to, existing products (including how it has been distributed). 2.8 For the purposes of Regulation 18(2) of the IDD Regulations, proportionality means that the product approval process should be relatively simple for straightforward and non-complex products that are compatible with the needs and characteristics of the mass retail market. On the other hand, in the case of more complex products with a higher risk of consumer detriment, more exacting measures should be required. 2.9 In relation to a N-II Product, Regulation 18(2) of the IDD Regulations does not allow a firm to assume that a simple product approval process will be appropriate for a product intended for a mass retail market even if the product and/or distribution arrangements are straightforward and not complex. For example, the potential risks and levels of harm which could result even from a straightforward and non-complex product, with simple distribution arrangements, intended for the mass market could mean that more exacting measures are required. 2.10 An example of a straightforward and non-complex product could be cover for a single item (such as mobile phone insurance), or in relation to a single risk (such as ticket cancellation insurance), with straightforward distribution arrangements. However, there could be potential risks of such a product not providing fair value and therefore potentially leading to significant levels of harm. Firms should ensure the product approval process has the necessary measures to identify and mitigate any potential risks and harms. Target market 2.11 In accordance with Regulation 18(3) of the IDD Regulations, for each insurance product a product approval process must: • specify an identified target market; and • ensure that:
• all relevant risks to the identified target market are assessed;
• the intended distribution strategy is consistent with the identified target market; and
• reasonable steps are taken to ensure that the insurance product is distributed to the identified target market. 2.12 The identification of the target market by the Manufacturer should be understood as describing a group of customers sharing common characteristics at an abstract and generalised

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 6 internal model requirements for insurers level in order to enable the Manufacturer to adapt the features of the product to the needs, characteristics and objectives of that group of customers. 2.13 The identification of the target market should be distinguished from the individual assessment at the point of sale to determine whether a product meets the demands and needs and, where applicable, whether an insurance-based investment product is suitable or appropriate for the individual customer. 2.14 The level of granularity of the target market and the criteria used to define the target market and determine the appropriate distribution strategy should be relevant for the product and should make it possible to assess which customers fall within the target market. For simpler, more common products, the target market should be identified with less detail while for more complicated products or less common products, the target market should be identified with more detail taking into account the increased risk of consumer detriment associated with such products. 2.15 In relation to a N-II Product, a firm should consider whether the target market needs to be identified in more detail, even for a simpler, more common product, where there is a material risk of customer harm associated with it. Product testing 2.16 For the purposes of article 6(1), (2) and (3) of the Technical Standards, Manufacturers should include assessments of the performance and risk/reward profile of their insurance products where appropriate. Distribution channels and information disclosure to distributors 2.17 In addition to the requirements of article 8(1) of the Technical Standards, to ensure appropriate information for customers, Manufacturers should select distributors that have the necessary knowledge, expertise and competence to understand the features of an insurance product and the identified target market. Distribution channels and information disclosure to distributors 2.18 For a N-II Product, the information required by Regulation 18(5) of the IDD Regulations should include: • all appropriate information to enable the distributor to understand the intended value of the insurance product established by the firm; • any effect the distributor may have on the intended value that has not been fully taken into account by the firm when assessing value, and therefore which the distributor should take into account; and • any type of customer for whom the insurance product is unlikely to provide fair value. Monitoring and review of insurance products 2.19 ‘Offers’ and ‘markets’ in the requirements in Regulation 18(4) of the IDD Regulations should be read to include ‘renews’ in relation to the renewal of existing N-II Products. 2.20 Where in the review required by Regulation 18(4) of the IDD Regulations and article 7(1) of the Technical Standards a firm identifies a breach of any legal requirements in place at the time, it should consider what may be necessary to provide appropriate mitigation and/or remediation

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 7 internal model requirements for insurers of the harm including whether redress should be made. The firm should contact any affected customers where this is necessary to inform them of the issues and of the actions being taken. 3. Distribution of insurance products 3.1 To comply with Regulation 18(6) of the IDD Regulations, Distributors should put in place effective arrangements to ensure that they obtain sufficient, adequate and reliable information from the Manufacturer about the insurance products to ensure that they will be distributed in accordance with the characteristics, objectives and needs of the target market. 4. Additional expectations for all Manufacturers and Distributors of insurance products 4.1 Manufacturers and Distributors should take appropriate action in order to avert the risk of consumer detriment when they consider that the insurance product is not, or is no longer, aligned with the interests, objectives and characteristics of the identified target market. 4.2 Manufacturers should consider whether the design of an insurance product is driven by features that benefit the customer and not by a business model which relies on poor customer outcomes to be profitable. 4.3 When providing information to Distributors, a Manufacturer should: • make it clear if that information is not intended for customer use; • ensure the information is sufficient, appropriate and comprehensible in substance and form, including considering whether it will enable distributors to understand it enough to give suitable advice (where advice is given) and to extract any relevant information and communicate it to the end customer. As part of meeting this standard, the Manufacturer may wish to consider, with regard to each distribution channel or type of distributor what information distributors of that type already have, their likely level of knowledge and understanding, their information needs and what form or medium would best meet those needs (which could include discussions, written material or training as appropriate). 4.4 When reviewing the insurance products it manufactures, a firm should communicate to the customer and/or Distributor contractual “breakpoints” such as the end of a long tie-in period that may have a material impact on a customer that the customer cannot reasonably be expected to recall or know about already. 4.5 Manufacturers should act fairly and promptly when handling claims or when paying out on an insurance product that has been surrendered or reached maturity. In doing this, the Manufacturer should meet any reasonable customer expectations that it may have created with regard to the outcomes or how the process would be handled. 4.6 In ensuring that they have obtained sufficient information about the insurance products they distribute and in ensuring they understand the insurance products distributed, Distributors: • should consider whether they understand the materials provided by the Manufacturer or Distributor earlier in the sales chain; • should ask the Manufacturer to supply additional information or training where this seems necessary to understand the insurance product adequately;

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 8 internal model requirements for insurers • should not distribute the insurance product if they do not understand it sufficiently; and • when providing information to another Distributor in a distribution chain, should consider how the further Distributor will use the information, such as whether it will be given to customers. Firms should consider what information the further distributor requires and the likely level of knowledge and understanding of the further Distributor and what medium may suit it best for the transmission of information. 5. Guidance for Manufacturers who are also Specified Providers Fair value for N-II Products: retail premium finance guidance 5.1 Where the Manufacturer will provide, or arrange for another firm to provide, the option for customers to buy a N-II Product using retail premium finance, it will need to consider if the additional costs of, or relating to, the retail premium finance have a material detrimental effect on the value of the insurance product when the two products are taken together. 5.2 When assessing the value of any particular retail premium finance under article 15(2), (3) and (4) of the Technical Standards, a Manufacturer should consider the relationship between: • the total price a customer would pay (including the applicable APR) for the retail premium finance; and • the quality of that retail premium finance including any relevant factors and features. For example, any benefit that a customer could have from using retail premium finance including the ability to spread the cost of a non-investment insurance contract instead of paying up front, taking into account the higher overall price the customer will have to pay. Fair value for N-II Products: guidance on reasonably foreseeable period 5.3 Firms will need to consider the matters in articles 17(1), (2) and (3) of the Technical Standards and the examples in paragraph 5.13 of this Guidance Note to identify if there is fair value both for the initial term of the N-II Product and the renewals for the foreseeable period. What may constitute a ‘reasonably foreseeable period’ will depend on the type of the NII-Product (including the intended term of any policy and the underlying risk) and the expected length of time a customer in the target market will keep the product, including in particular where it would be reasonably expected that a customer would renew the product on a number of occasions. 5.4 When considering whether a product will provide fair value for a reasonably foreseeable period, a firm should consider at least: (a) any expected changes to the total price a customer would pay during the period that they hold the product (including at the first or any subsequent renewal or any other point in time); (b) any expected change to the insured risk over time, for example in the nature, financial value or a customer’s usage of an underlying good to which the insurance relates; (c) whether the number of expected claims that may be made, or financial value of any such claim, would be expected to change over time due to the nature of the product, the customer’s needs or any relevant features of the insured risk, for example:

• as a result of expected depreciation in the value of the insured asset;
• where the customer’s need, or eligibility, for certain cover may change including as a result of features identified in (b) or where claims have been made;

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 9 internal model requirements for insurers (d) whether the total premiums expected to be paid over the length of time a customer would hold the product would exceed the benefits that could be received from claims for example due to cover limits applying across the foreseeable period (taking into account any deductions permitted by the contract such as any relevant policy excess for such claims); (e) whether the benefits offered by the policy at inception may not be available at subsequent renewals, due to exclusions or claims limits, without any commensurate reduction in the premium; (f) whether customers could be discouraged from or be unable to renew due to the level of ongoing premiums including increases at renewal meaning they may not be receiving the full intended benefits of the product (where these are intended to be spread across the reasonably foreseeable period). Fair value for NII-Products: general 5.5 When considering the costs of, or associated with, any distribution arrangements, firms should consider the justification in value terms of any difference between the risk price and the total price paid by the customer including where the difference is mainly due to the costs (including remuneration) of any person in the distribution arrangements or where this is due to the combined costs (including remuneration) of multiple parties involved in the distribution arrangements. 5.6 Where a firm identifies that an insurance product, package or individual component has poor value or there is an unreasonable relationship between either the cost to the firm and the price paid by the customer, or the price paid by the customer and product quality or service provided, the product or package will not be providing fair value. However, a firm should not assume there is fair value simply due to the absence of an unreasonable relationship in the costs or where they identify an absence of poor value. Firms will need to consider all relevant aspects of value in the particular context and consider whether overall there is fair value provided. 5.7 Where a N-II Product has negligible, or no obvious, benefit for the customer this will not be providing fair value regardless of the price of the product. For example, the product will not provide fair value where the cover under the non-investment insurance contract is significantly limited, whether by exclusions or limits on the amount that would be paid in settlement, meaning that the customer is unlikely to be able to make a successful claim or where the customer could conclude it is not in their interests to make a claim due to the disproportionate time or effort which would be required, compared to the claim settlement which would be expected. 5.8 When assessing whether a package provides fair value for the purposes of article 15(2), (3) and (4) of the Technical Standards, a firm will need to consider both the components individually and the package as a whole to identify whether there is fair value. This should include whether there is a risk that the individual components do not provide the same level of value to the customer when combined in a package. For example, where the package includes more than one N-II Product, a firm should consider the type and level of insurance cover provided by each of these products and whether this would result in duplicate insurance cover that could detrimentally affect the value of the package. Fair value for N-II Products: information to be used 5.9 The information that a firm will need to use for the purposes of article 18(1) and (2) of the Technical Standards will depend on the nature of the particular N-II Product and (where relevant) the package, the particular distribution arrangement(s), the target market, the nature

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 10 internal model requirements for insurers of any actual customer base, and any existing information on customer outcomes (for example claims experiences, outcomes of claims and complaints related data). Fair value for N-II Products: distribution arrangements 5.10 Where a firm is considering the effects of a distribution arrangement value it should consider whether the additional costs of any individual party in the arrangements that add to the total price paid by the customer deliver any, or a proportional, additional benefit. If not, firms should consider how they can be satisfied that the arrangements are consistent with their obligations to be able to clearly demonstrate fair value to the customer. 5.11 A benefit that could be consistent with fair value might include whether the party’s inclusion in the distribution arrangements increases access to the product for customers in the target market in a way that is proportionate to the additional cost involved. 5.12 Firms should take into account what is necessary to satisfy the requirements of the Technical Standards together with their wider legal obligations. Fair value for N-II Products: compliance with fair value requirement 5.13 The following are examples of arrangements the GFSC considers will breach article 15(1) and, where relevant, article 15(2), (3) and (4) of the Technical Standards: • a firm should not have a N-II Product where the difference between the risk price to the firm and the total price paid by the customer bears no reasonable relationship to:

• the actual costs incurred by the firm or any another person involved in the distribution arrangements;
• the quality of any benefits (including of the insurance product or any additional products); or
• the costs or quality of any services provided in connection with the insurance product or additional products, by the Manufacturer or any another person involved in the distribution arrangements; • a firm should not increase the price of an insurance product based on:
• policies being subject to auto-renewal compared to policies that are not subject to auto-renewal;
• the customer’s vulnerability or any protected characteristic(s) (unless the firm is clearly permitted to rely on them under the Equal Opportunities Act 2006); or
• where customers purchase the policy using retail premium finance;
• unless the firm has an objective and reasonable basis for making the change; • a firm should not use an estimated final price to the customer to assess value that does not represent the expected total price to the customer including any additional products the firm expects to be purchased by the customer. For example, where the firm is responsible for providing or making available retail premium finance (the costs of which will be part of the total price paid by the customer). Product Testing 5.14 Article 22 of the Technical Standards does not affect the Manufacturer’s freedom to set premiums. 5.15 In relation to a N-II contract a firm should consider whether, as a result of the charging structure it has put in place, the overall cost for the customer is consistent with its obligations

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 11 internal model requirements for insurers under article 15(1) (and, where relevant, article 15(2), (3) and (4)) of the Technical Standards as well as any other applicable legislation and guidance. Monitoring and review of insurance products 5.16 For the purposes of article 23(1) of the Technical Standards, the factors that should be taken into account when considering if more frequent reviews would be appropriate include, but are not limited to: • the nature and complexity of the product; • the nature of the customer base, including whether there are significant numbers of customers of long tenure and/or vulnerable customers; • any specific indicators seen in the firm’s assessment of the product’s value to the customer; • any indicators of customer harm potentially emerging from the performance of the product (for example through claims and complaints data); and • the nature and type of distribution arrangements being used. 5.17 When reviewing N-II Product a firm may group similar products together where this does not detrimentally affect the firm’s ability to review each product appropriately. This includes the need to review whether any individual product, and where necessary a package, is providing fair value. 5.18 For the purposes of paragraph 5.18, ‘similar products’ will be those products that are intended to deliver similar cover and outcomes for customers where the target markets are consistent. 5.19 A firm should consider the following factors when identifying whether it is appropriate to group products together for review: • the risk of customer harm for each individual product; • the complexity of each product; • the nature of the target market and existing customer base for each product (including the extent to which this includes vulnerable customers); • any specific indicators seen in the assessment of value under article 15(1) and where relevant 15(2), (3) and (4) of the Technical Standards, which may make it inconsistent to review that product alongside others; • any specific indicators of customer harm emerging from the performance of each product; and • the nature and type of distribution arrangements for each product. 5.20 A firm will need to ensure that the grouping of any reviews does not impair the firm’s ability to identify any risk that a product is not delivering fair value or that there is any other issue which could give rise to customer harm in relation to each individual product. 5.21 The information that a firm will need to use for article 23(5) of the Technical Standards will depend on the nature of the N-II Product, (where relevant) the package, the particular distribution arrangement(s), the target market, the nature of the actual customer base, and the firm’s existing information on customer outcomes (for example claims experiences, outcomes of claims and complaints related data). 5.22 For article 23(4) of the Technical Standards, a firm should identify whether there is a risk to it continuing to provide fair value where there is a material change in the relationship between

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 12 internal model requirements for insurers the price to the customer and the actual costs to the firm or another party involved in the ongoing service/distribution of the product. 5.23 In relation to a N-II Product, when identifying the appropriate intervals for regular review, firms will need to consider the requirements in article 23(1) of the Technical Standards and also whether any event has happened or any issue has arisen requiring the insurance product to be reviewed outside of the minimum review period. 5.24 In relation to a N-II Product, the actions firms may need to take for the purposes of article 23(7) of the Technical Standards include (and may involve a combination of), but are not limited to: • making changes to the product (such as amending policy terms or applying them more favorably to customers in the event of a claim); • offering existing customers the option to cancel the non-investment insurance contract without additional cost (for example by waiving cancellation fees or charges); • providing customers with a refund of the difference between the premium paid for the non￾investment insurance contract and the premium for a fair value version of that product; • proposing alternative insurance products, whether offered by the firm or another provider, to existing customers or distributors which provide fair value and which would be compliant with other legal and regulatory requirements; and • withdrawing the insurance product from continued marketing or distribution. Distribution channels: selecting channels for N-II Products 5.25 For article 26(2) of the Technical Standards, a change to the distribution arrangements includes adding a further distribution channel. 5.26 For a N-II Product sold on an ancillary basis to another product or service, for example a motor vehicle, electrical good or a holiday, a firm should consider whether the proposed distribution channel would be appropriate in light of the risk that the customer’s focus is on the core product rather than the insurance product. 6. Guidance for Distributors who are also Specified Providers 6.1 Where a Distributor intends to distribute a N-II Product alongside: • one or more other N-II Products (whether from the same or another Manufacturer); or • any other additional product, then the Distributor should be able to demonstrate these arrangements are consistent with the aim of providing fair value to a customer and any package does not have a detrimental effect on the intended value of any N-II Product. 6.2 For the purposes of paragraph 6.1, where more than one N-II Product is part of a package, a Distributor should consider at least whether the products: • have consistent target markets; and • provide cover in respect of the same risk and subject matter which could result in duplicate cover that could detrimentally affect the intended value of each individual product.

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 13 internal model requirements for insurers 6.3 A Distributor should ensure they have obtained, and taken account of, all relevant information from a Manufacturer in relation to any N-II Product in the package to understand the value, the relevant target market and any other relevant characteristic of that product. 6.4 The arrangements a Distributor is required to have in place this section are separate from the processes and arrangements the firm should have in place at the point of sale, including to comply with the customer’s best interests rule and to determine whether a product being proposed is consistent with the demands and needs of a particular customer. 6.5 When assessing the impact that the distribution arrangements may have, a Distributor should consider the effects of any retail premium finance it offers to customers including the relationship between: • the total price a customer would pay for the retail premium finance (including any charges for the credit whether in the APR or otherwise and fees); and • the quality of that retail premium finance including any relevant factors and features. For example, any benefit that such a customer could have from using retail premium finance, including the ability to spread the cost of a non-investment insurance contract instead of paying up front, taking into account the higher overall price the customer will have to pay. 6.6 The following are examples of arrangements the GFSC considers will breach of article 27(3), (4) and (5) of the Technical Standards: • a firm’s distribution arrangements including any distribution strategy it sets up, should not result in:

• the firm receiving a level of remuneration which does not bear a reasonable relationship to the firm’s actual costs, or their contribution, level of involvement or the benefit added by them, to the arrangements for the distribution of the product, including where the firm provides little or no benefit beyond that which the customer would receive if they obtained the insurance product through another distribution channel;
• the firm having remuneration arrangements which give an incentive to propose or recommend an insurance product which either does not meet the customer’s needs (or not as well as another product would) or is not in accordance with the customer’s best interests rule;
• where the insurance product is distributed as part of a package, the overall price of the package not bearing a reasonable relationship to the overall benefits provided by the package; or
• the level of any remuneration (for which the firm is responsible for setting) not being reasonably reflective of the costs actually incurred. 6.7 For the purposes of article 30 of the Technical Standards, the steps a Distributor may need to take include, but are not limited to: • amending its remuneration structures; • amending the distribution arrangements; • improving the quality of, or ceasing, any service or benefits it provides; • where the failure to provide fair value is due to the costs or quality of additional products, renegotiating the terms of the current arrangements relating to the additional products, or selecting alternative providers or distributors of them, in order to provide for a fair outcome;

Gibraltar Financial Services Commission Guidance Note on Solvency 2: Expectations for meeting the 14 internal model requirements for insurers • ceasing to distribute certain insurance products (or where relevant, packages), or ceasing to use certain distribution channels; • contacting existing customers to inform them of the issues and of the measures being taken to rectify them; and • providing redress to customers. 7. Guidance relating to legacy N-II Products specific to Specified Providers Purpose 7.1 The purpose of this section is to set out the product governance distribution arrangements for, and how the Technical Standards applies to, legacy N-II Products. Manufacturers of legacy N-II Products 7.2 For the purposes of article 32(1) of the Technical Standards, a Manufacturer will need to demonstrate it has arrangements to meet the following: • general product approval process requirements (articles 3, 4 and 5 of the Technical Standards); • fair value assessment (articles 15, 16, 17, 18, 19 and 20 of the Technical Standards); • target market requirements (articles 5, 18 and 21 of the Technical Standards); • product testing (articles 6, 15 and 22 of the Technical Standards); • distribution channels and information disclosure to distributors requirements (articles 8, 25 and 26 of the Technical Standards); and • monitoring and review of insurance products (articles 7, 8, 18, 23 and 26 of the Technical Standards), as outlined in the Technical Standards and this Guidance Note. 7.3 Firms should take into account all relevant factors, including those in paragraphs 2.7 and 2.8, when identifying the necessary product approval process and arrangements including, in particular: • previous product governance arrangements including reviews which the firm (or another person) has undertaken and the extent to which these would or would not have complied with the Technical Standards and this Guidance Note; and • the potential level of harm which could result from the product in question. 7.4 Firms should ensure the product approval process has the necessary measures to identify whether the insurance product is, or remains, appropriate to be marketed or distributed to customers. 8. Additional expectations for Manufacturers and Distributors who are Specified Providers in relation to value measures data 8.1 Article 35(2)(f) of the Technical Standards does not affect Manufacturers’ freedom to set premiums.

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