On 19 March 2021, IVASS (the supervisory authority for insurance intermediaries) published a press release stating that the first visits by mystery shoppers had already begun earlier this month. Indeed, in 2020, IVASS initiated “mystery shopping” in connection with its consumer protection role, and launched two pilot projects to verify directly whether the commercial practices of insurance distributors, as well as on the internet, were correct. In Italy, internet sales of insurance products are increasing, and IVASS aims to perform its duties while adapting to the changes in Italians’ purchase of insurance.
What is Mystery Shopping?
Mystery shopping – the Institute explains in a memorandum – is a verification technique to check the quality of their goods and services, and which uses people pretending to be customers.
Widely used in various commercial activities, this tool is considered a means of “prevention” and not only a method of control. It can also be applied in online shopping, in which case it is called “Mystery Surfing”. Mystery shopping, which is being developed with the support of EIOPA (the European Insurance Supervisory Authority) and financed by the European Union’s Structural Reform Support Programme, aims to provide the Italian insurance regulator with new tools and methodologies for carrying out its activity of monitoring the activity of insurance distributors.
How does it work?
The Mystery Shopper is a trained professional who acts anonymously as a potential buyer: in practice, he or she goes to the insurance agency, broker, bank or post office and asks for all the information needed to take out an insurance product. This procedure is also valid online: the Mystery Shopper surfs anonymously on the intermediary’s website and tries to gather all the information needed to make an informed choice. Therefore, the Mystery Shopper ascertain how insurance products are offered and then submit a report to IVASS.
Unlike traditional monitoring tools, such as inspections, which can uncover events and practices that have already occurred, Mystery Shopping mechanism is a before-the-event control, and is particularly useful in stopping behaviour that does not comply with an intermediary’s obligations, such as the requirement that a product corresponds to a customer’s demands and needs.
This mechanism must be compatible with all other pre-existing control tools. To do so, IVASS was inspired by a study of other European countries that have already used this practice in the insurance sector, such as the United Kingdom and Belgium and is developing a regulatory framework to allow this.
What do Mystery shoppers check?
The Mystery Shopper should check that insurance intermediaries comply with their obligations, such as:
- Providing complete information to customers before and during the sale of an insurance product, and delivering specific information documents to them ;
- Complying with the requirement that a product corresponds to a customer’s demands and needs (the mystery shopper will check whether insurance intermediaries ask their customer for the necessary information).
Faced with these new control measures and an increasingly digital and regulated insurance market, insurance distributors must now be more vigilant than ever.
If this experience is successful, it may be extended to other areas and sectors it supervises.
However, several issues still need to be addressed, such as the interplay between mystery shopping and other investigative techniques or how much weight to give to the mystery shopper’s conclusions.
Indeed, other countries as Belgium also use mystery shopping as a control method. The FSMA (the Belgian watchdog) has developed this before-the-event control method since 2013, and the conclusions of mystery shoppers are not sufficient to justify the adoption of concrete measures or the imposition of sanctions on insurance intermediaries. Nevertheless, they may lead to further examination. It will therefore be up to IVASS to decide whether or not it is appropriate to use the same model as Belgium. It is important to underline the fact that mystery shopping was strongly criticised when the FSMA started using it in Belgium. Indeed, some pointed out that other means as effective as this method exist, such as tests, examinations, uncovered on-site inspections, etc. Furthermore, mystery shoppers can be FSMA staff members or external collaborators, but the law does not provide for any particular professional or ethical qualification for these third parties. Finally, mystery shopping has raised some concerns about the conclusions unilaterally drawn by the mystery shoppers, or the fact that this method implies that FSMA is both judge and party – which is according to them a fundamental infringement of the subjective rights of individuals.
Click here to see the press release: https://www.ivass.it/media/comunicati/documenti/2021/ivcs473.pdf