ITALY: An Introduction to Insurance
Intense Transformation
The insurance sector in Italy – and particularly in the intersection between Italy and Luxembourg, which is one of the most interesting markets from an Italian angle – finds itself in a phase of intense transformation. Driven by both regulatory developments and economic pressures, the market is facing substantial legal complexities alongside opportunities for structural and commercial innovation.
A challenging environment
In Italy, the market continues to present a challenging environment, especially for life insurance providers. The traditional life business model is experiencing a marked contraction, driven by shifting customer expectations, tighter regulatory scrutiny, and a growing perception of product overlap with financial instruments. Meanwhile, the non-life segment is gaining renewed momentum. There is growing demand for products tailored to climate risk, cyber threats, and demographic pressures on healthcare.
Mandatory NAT-CAT insurance
This evolving demand has prompted policymakers and the NSAs to act. One of the most impactful legal novelties is the introduction of mandatory NAT-CAT insurance — designed to offer coverage against natural catastrophes, yet still ambiguous as to its borders. This shift is obliging undertakings to rethink how they structure, price and underwrite such risks. While the measure has been broadly welcomed, its implementation raises complex technical and compliance questions.
Cross-border perspective
From a cross-border perspective, Luxembourg remains a key jurisdiction. Many Italian insurance groups have long used Luxembourg-based undertakings to passport products back into the Italian market and vice versa. However, this well-established dynamic is being tested. There are emerging regulatory and supervisory tensions particularly in relation to the treatment of underlying assets in unit-linked products and to the newly-approved Italian out-of-court dispute resolution body. A challenging circumstance considering the increasing involvement of private equity firms – typically driven by short-term expectations – in insurers’ equity and in insurers’ underlying investments.
Underlying investments
Italy’s supervisory Authority is in the process of drafting new rules to govern these underlying assets. While the intention is to enhance investor protection and ensure greater transparency, the practical impact could be significant, especially for operators managing cross-border portfolios. Aligning these new Italian requirements with the more flexible Luxembourgish approach is proving difficult. Without careful regulatory coordination, firms could face fragmented obligations that undermine the operational efficiencies traditionally associated with cross-border platforms.
Outsourcing of fundamental activities
Another area drawing increasing scrutiny is outsourcing of fundamental activities. Regulatory expectations around the governance and oversight of outsourced functions — particularly IT, cloud services and asset management — have tightened. Insurers are now expected to adopt much more robust risk assessments and contingency plans. This shift is placing operational strain on cross-border firms that historically relied on outsourcing as a tool for efficiency and cost reduction. Compliance with these new expectations requires a rethinking of contractual arrangements, oversight frameworks and internal controls.
Legal uncertainty
Legal uncertainty has also been fuelled by a number of judicial decisions, particularly from the Italian Supreme Court and the European Court of Justice. Subtly conflicting rulings have increasingly scrutinised the borderline between insurance-based investment products and pure financial instruments. In some cases, policies previously classified as insurance are being requalified as financial instruments, triggering significant compliance burdens and potential legal liabilities especially considering that EU law prevents insurers from selling non-insurance products. A latent conflict – which could jeopardise the classic Home Country Control principle – between supervisory Authorities as to their collaboration and information sharing when it comes to insurance undertakings operating through seems to be reaching its peak. Italy is at the centre of it.
Aggressive tax environment
Parallel to this, the tax environment for insurers is becoming notably more aggressive. In the wake of economic strain, fiscal authorities have adopted a more assertive posture in auditing and litigation. This growing activism is, however, being carefully watched by both domestic courts and the European Court of Human Rights, especially where procedural guarantees or principles of proportionality may be at stake.
Stamp duty on insurance products
Adding to the complexity is a newly introduced regime concerning stamp duty on insurance products, which many commentators argue creates an indirect discriminatory effect. While formally neutral, the measure disproportionately affects cross-border undertakings offering products into Italy. The design of the tax has raised concerns from a solvency perspective, under EU law, especially regarding the free provision of services and equal treatment of market operators.
Insurance Recovery and Resolution Directive
In addition to this, the incoming Insurance Recovery and Resolution Directive represents another significant development. Although still in the implementation phase, the Directive strives to harmonise how EU Member States address the recovery and resolution of failing (re)insurers. For Italy and Luxembourg — both of which have recently felt the tremors of systemic insurance failures and faced mass lapse events — this initiative comes not a moment too soon.
More resilient insurance solutions
Despite these challenges, the market is far from stagnant. There is growing awareness among clients — both institutional and retail — of the need for smarter, more resilient insurance solutions. ESG concerns, digital transformation, and the rise of embedded insurance are reshaping product design and consumer expectations.
Italy and Luxembourg
Luxembourg remains a favourable jurisdiction for product innovation and complex investment structures, while Italy’s focus on consumer protection and regulatory oversight provides a level of assurance which is crucial, yet – when taken to extremes – may become demanding from a business standpoint. The duality between these jurisdictions, though occasionally difficult to navigate, allows for a certain dynamism: firms willing to read the regulatory weather carefully and adjust their sails may find significant growth opportunities, even in a choppy sea.