An Overview of the Italian Insurance Market
Contributors: Nicolò Juvara and Eleonora Merlo
Firm: Molinari e Associati
Based on the data published by both IVASS (the Italian insurance regulator) and ANIA (the Italian insurance industry association), after unstable and oscillating trends in both the life and non-life segments, the Italian insurance market registered limited growth over the past two years in terms of premium income, while showing a slight decrease of profitability for the industry. The main factors affecting the industry's performance are the process of increasing digitalisation, the competitive environment, the implementation of the Insurance Distribution Directive (EU) 2016/97 (IDD) and regulatory compliance with the local corporate governance rules in accordance with Solvency II regulations.
To give some numbers, as of 31 December 2018, there were 100 companies authorised to carry out insurance and reinsurance activity in Italy and subject to the supervision of IVASS. That result represents a slight decrease vis-à-vis the 103 companies as of 2017, which is mainly due to the on-going consolidation process of the market. Among such authorised insurance companies, 97 are national insurers, whilst only 3 are branches of foreign, non-European countries. In fact, over the past 10 years, there has been a gradual reduction in the number of national insurance companies, from 156 to 97, for reasons which might be related to the economic crisis or to the significant costs and taxation involved.
With regard to insurance companies with their registered office in the EU, 110 companies are authorised to operate in the Italian insurance market under the freedom of establishment regime, while 1,055 are authorised under the freedom of services. Over the past 10 years, the number of the former increased by 47%, while the latter experienced growth of 14%. In light of Brexit, the number of EU insurers operating in Italy with their head office in Continental Europe has increased significantly, due to the relocation of the EU business of such insurers outside the UK.As regards intermediaries, as of 31 December 2018, more than 235,000 Italian intermediaries were enrolled in the Italian Intermediaries Register. Among these, the number of agents and brokers has been gradually dropping compared to the past few years, due the impact of the IDD which establishes more burdens for distributors, in terms of governance and conduct rules. Other distribution channels, such as banks and internet, have become more and more active.
II. THE IMPLEMENTATION OF THE IDD AND CORPORATE GOVERNANCE RULES
The IDD has produced a legal framework in which distribution activity is conceived not only from the perspective of the market players (insurance companies and intermediaries), but also and particularly with the aim of protecting and ensuring the satisfaction of consumers' needs. Following the IDD and the consequent amendments of the Italian Insurance Code adopting the IDD in the national legal framework, IVASS issued two regulations to implement the IDD at the regulatory level. IVASS Regulation no. 40/2018 provides an organic framework for the distribution activity, also taking into consideration the promotion of new technologies and the growing need for simplification. The main areas of intervention are the following:
(i) the requirements for registration, access and performance of the distribution activity carried out by intermediaries;
(ii) the annual obligation of training and professional updating of distributors, including the employees of insurance companies and ancillary intermediaries (intermediari a titolo accessorio);
(iii) the rules with regard to the conduct of distributors and pre-contractual obligations;
(iv) the distribution of insurance contracts by means of remote communication, including internet and social networks.
IVASS Regulation no. 41/2018 establishes a set of rules in respect to pre-contractual obligations, providing for new standardised pre-contractual documents, that are simplified and differentiated in relation to the type of insurance product, in line with the IDD and the EU implementing regulation (EU) 2017/1469. However, in addition to the insurance product information document (IPID) for non-life products provided therein, the Italian regulations also require manufacturers to make available to distributors and clients a similar informative document for life products, plus an additional IPID for both life and non-life products containing more detailed information to be disclosed to the policyholder. Furthermore, the product information documents have to be published on the web sites of insurers and the policyholder is entitled to choose to receive this information by digital means. Indeed, this Regulation also has the purpose of increasing the digitalisation of the Italian insurance market: from the chance to manage the contract through home insurance, to the publication of the informative package on the dedicated web site and the digital management of the data collected relating to policyholders.
In terms of corporate governance, the intervention of IVASS assured the national implementation of European delegated Regulation (EU) 2015/35, which supplements the Solvency Directive (EU) 2009/138, and of the EIOPA guidelines 14/253 related to the corporate governance system. In this respect, IVASS acted on two different but complementary fronts:
(i) IVASS Regulation no. 38/2018, aiming at establishing a suitable corporate structure as well as a clear distribution of tasks and liabilities. In particular, in strengthening the central role of the management and control bodies, the position of the board of directors has been stressed as the body with ultimate responsibility in the context of the governance structure, defining strategies, providing guidelines, approving corporate policies and monitoring the suitability of the governance structure;
(ii) the Letter to the Market of 5 July 2018 setting three different corporate governance regimes (namely, enhanced, ordinary or simplified regime), depending on the size, the complexity of business carried out and the risk appetite of each insurer. In light of such parameters, each insurer has the duty to conduct a self-assessment test and adopt the most appropriate regime. Each regime implies a particular framework of organisational measures with regard to the appointing of independent directors, the delegated powers of the chairman of the board of directors, the functioning of the internal committees, the outsourcing of the key functions and the remuneration policy.
III. INSURANCE IN THE HEALTHCARE SEGMENT
Law no. 24/2017, which mainly intervened with regard to safety of healthcare, as well as medical professional liability, provides for innovations in the insurance segment as well. In particular, this legislation requires:
(i) public and private healthcare facilities and health professionals to take out an insurance policy to cover professional liability, although healthcare facilities may also adopt other alternative measures in order to manage their professional liability, such as dedicated funds, personal guarantees or other systems of risk retention;
(ii) the Ministry of Economic Development and the Ministry of Health to set the minimum requirements for such insurance policies, which however must have retroactive effect and post-termination effect up to 10 years;
(iii) IVASS to supervise the insurers which offer healthcare policies and to monitor any alternative measures;
(iv) the Ministry of Health to establish a “Guarantee Fund” for certain special situations involving compensation for damages deriving from professional liability.
IV. CLAIMS MADE CLAUSES
Claims made policies have been at the very centre of Italian case-law discussion and judgments over the past few years, which have influenced the impact that these clauses have in the Italian insurance market. For the sake of clarity, “claims made” clauses provide coverage for those claims that are first made by a third party against the insured during the policy period. However, the traditional insurance mechanism provided for in the Italian Civil Code is the so-called “loss occurrence” clause, providing coverage for any event of damage occurring during the policy period, irrespective of when the claim is raised.
While insurance practice has traditionally considered “claims made” clauses as generally valid, in the recent past certain case law decisions have challenged that validity as contrary to any principle of fairness, and as such, not deserving of any protection under law. Certain court decisions have adopted an even more restrictive approach, stating that “claims made” clauses are null if they exclude posthumous claims for compensation from the coverage, as they grant an unfair benefit to the insurance companies and actually avoid any transfer of risks.
In more recent decisions rendered in 2018 and 2019, the Supreme Court adopted a new case-law interpretation, as it: (i) stated the validity of the clauses, since they do not lay down limitations of liability in favour of the insurer, but simply define the scope of the coverage, establishing which claims can be indemnified; (ii) repudiated any reference to the fairness principle in order to assess the validity of such clauses; and (iii) established that policyholders can be protected by other pre-contractual and contractual remedies, in case the policy does not meet their insurance demands and needs.
It is too early to assess if the issue of the validity of the “claims made” clauses has been definitively overcome, but this recent approach should certainly give more comfort to insurers when using such clauses to limit their risk exposure, especially in connection with financial and environmental risks.