Conduct Risk
Conduct risk is the risk that inappropriate behavior by an insurer towards customers causes harm and results in regulatory or reputational consequences.
Concept
Conduct risk refers to the risk that an insurer, through inappropriate business conduct towards customers — such as poor advice, misleading product information, or unfair claims handling — causes harm to customers, thereby risking regulatory action, fines, reputational damage, or competitive disadvantage.
Distinction from Operational Risk
Conduct risk is closely related to operational risk but focuses specifically on the customer perspective and on whether products, distribution practices, and claims handling are designed in customers’ best interests, whereas operational risk more broadly also captures internal process and system failures without a direct customer link.
Relevance in the Regulatory Context
Supervisory authorities such as BaFin and EIOPA are placing increasing emphasis on managing conduct risk as part of consumer protection initiatives, for example through requirements for product approval processes (Product Oversight and Governance, POG) and the fairness of remuneration structures in distribution.