This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the Italy.
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
The Legislative Decree of 7 September 2005, n. 209 (herein after only the Italian Private insurance Code) makes clear that only public companies, cooperatives and mutual insurance companies or equivalent foreign companies can practice insurance and reinsurance. Foreign insurers based in an EU Member State can write business in Italy directly under the freedom of services principle, in accordance to EU legislation and national implementation rules.
To start their operations any of the above mentioned enterprises, regardless if they are Italian or foreign, shall apply to the IVASS (the Italian Supervisory Agency) for an authorization to underwrite insurance and reinsurance in Italy. A notable exception were the Lloyd’s syndicates that were specially authorized by way of the Industry Ministry Decree 02.07.1986 due to their special historical status. New insurance and/or reinsurance companies wishing to do business in Italy shall seek and obtain IVASS’s authorization order (if the undertaking has its head office in Italy) or by a formal acknowledgment of the certification issued by any other competent EU supervising authority where the company has a registered office. The newly authorized (re)insurance company can start operating only after IVASS’s authorization, or the formal acknowledgment, has been published in the Italian Official Journal.
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
Yes life companies, non-life insurers and reinsurers are differently regulated by the Italian Private insurance Code. That is especially true in respect of the required share capital to operate, solvency margins and how reserves are posted in the annual accounts.
Are insurance brokers and other types of market intermediary subject to regulation?
Yes insurance intermediaries are regulated in Italy and are subject to the supervision of IVASS in accordance to the ISVAP Regulation of 16 October 2006 n. 5.
To legitimately operate any Italian intermediary must passed the IVASS national exam and consequently be listed on the Sole Register of Insurance and Reinsurance Intermediaries (so called RUI).
A special section of the RUI lists natural persons and companies licensed as (re)insurance and intermediaries in other EU or EEA Member States who have also been authorized by IVASS to pursue insurance mediation in Italy based on the freedom of establishment or freedom of services.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
Any (re)insurance company that applies for an IVASS authorization must submit a number of documents the most important of which are:
- a certified copy of the memorandum and articles of association showing the (re)insurance classes that the insurer will underwrite, keeping in mind that, in Italy, it is forbidden to set up a company whose sole object is the exclusive pursuit of insurance business abroad;
- evidence that the memorandum and articles of association have been deposited with the Registrar of Companies and that the incorporation has taken place in accordance with the Italian Civil Code provisions or the applicable foreign laws;
- a scheme of operations and a technical report drawn up pursuant to the IVASS’s regulations. The cìscheme shall include an organization chart listing the names of the persons charged with administration, management, internal controls and corporate governance functions as well as the names of the natural or legal persons that, directly or indirectly, are controlling the company, with an indication of the amount of each holding;
- proof that the company has a share capital or guarantee fund, fully paid up in cash, sufficient to meet the liabilities of the intended business plan, and proof that the company possesses the minimum organization fund required by IVASS regulations n. 97/1995 or 98/1995, or both, fully paid up in cash; and
- for foreign companies, only, proof of the appointment of a general representative, natural person or a company, that must be domiciled in Italy at the branch’s address.
If the application is incomplete or IVASS’s requests for further information are not met, authorization is usually denied. It is also refused if the share capital or guarantee fund has not been fully paid up, or the organization fund is actually and immediately available to the company.
How long does it take to be authorized depends on how complete the application file is and how satisfactory are the information therein contained. However, the authorization is considered refused if six months elapse with no IVASS response has been received by the applicant.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
There are no restrictions regarding investments into a new insurance company or the acquisition of an Italian (re)insurance company, if the funding of the operation does not breach any anti-money laundering provision or public policy in which case IVASS will intervene and suspend the authorization to operate.
Moreover IVASS constantly supervises the life of a company and might intervene if the laws, regulations and administrative provisions of any state to which the company or one or more of its shareholders is subject, and in any case where one or more shareholder have problems in meeting Solvency II requirements, in which case authorization can be suspended or even revoked.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
No, in Italy it is not possible to insure risks without a license or authorization. Foreign insurers which are not based or do not have a General Representative in an EU Member State are forbidden from underwriting risks directly on the basis of the freedom of services principle, but they can still underwrite reinsurance risks without limitation if they have applied and obtained the IVASS’s authorization.
What penalty is available for those who operate without appropriate permission?
Art. 305 of the Italian Private insurance Code provides for the case of insurance activity abusively exercised (i.e. in absence of the required authorization). According to the norm, anyone who carries out (re)insurance activities in the absence of authorization is punished with imprisonment from two to four years and with a fine from twenty thousand euros to two hundred thousand euros.
The very same provision provides for intermediaries that abusively are broking insurance business. In this case, anyone who intermediate insurance or reinsurance mediation in the absence of registration in the RUI shall be punished with imprisonment from six months to two years and with a fine from ten thousand euros to one hundred thousand euros.
How rigorous is the supervisory and enforcement environment?
If there is suspicion that a company carries out (re)insurance activity or (re)insurance brokerage without the due authorization, IVASS requires the competent Tribunal to adopt the measures envisaged by article 2409 of the civil code or when the evidence are clear denounces the facts to the public prosecutor.
In all the other cases where IVASS has suspicion that an authorized company carries out (re)insurance activity in breach of the regulatory system or does not meet the solvency tests usually send out an inspective team and determine the extent of the breached or the shortage of the solvency limits. Of such inspective activity it is drafted a minutes signed by both the IVASS officer/s and the managers of the inspected company. Then a report with the proposed sanctions is notified to the inspected company and the latter has the opportunity to present their observations. If the observations are accepted, the sanctions are lifted otherwise confirmed and became executive.
It is worth to mention that anyone who obstructs the supervisory functions either refusing the access to the premises or denying the exhibition of documentation concerning the (re)insurance activity or of (re)insurance intermediation to IVASS officials may be punished with imprisonment of up to two years and a fine from ten thousand euros up to one hundred thousand euros.
How is the solvency of insurers (and reinsurers where relevant) supervised?
With Solvency II in January 2016, and subsequent IVASS Regulation of 6 June 2016 n.24, insurers are free to choose the most appropriate investment instruments, subject to the precondition that their immediately available capital is adequate to cover the risk underlying such investments and to meet the solvency tests.
Prudential controls follow a risk-based supervisory approach, aimed at verifying that the controlled company adequately manage the risks accepted on a continuous basis and have adequate capital safeguards in place to cover unexpected losses. Prudential controls include checking whether the undertaking has an adequate organizational and governance structure, a balanced technical, financial and capital structure, and whether it complies with supervisory provisions. For this purpose, IVASS carries out off-site and on-site controls.
What are the minimum capital requirements?
Depending from the insured risk class, the Italian Private insurance Code requires that the insurance company’s minimum share capital or guarantee fund must not be less than:
a for life insurance companies: €5 million;
b for non-life insurance companies:
- €5 million for insurance classes 10 Motor, 11 Aircraft Liability, 12 Marine Liability, 13 General civil Liability, 14 Credit and 15 Bonds;
- €2.5 million for insurance classes 1 Personal Accidents, 2 Illness, 3 Land vehicle (non-rail) vehicles , 4 Railway vehicles, 5 Aviation, 6 Hull & Yachts, 7 Chargo, 8. Fire and natural elements (damage to property, 16. Pecuniary losses of various kinds and 18 Assistance; and
- €1.5 million for insurance classes 9 Other property damage caused by hail, frost or other event (theft) and 17 Legal protection;
c for companies intending to pursue life assurance, personal accident and sickness insurance simultaneously:
- €5 million for life assurance; and
- €2.5 million for the pursuit of personal accident and sickness insurance; and
d for mutual companies, the minimum share capital is reduced to half the here over listed amounts.
Is there a policyholder protection scheme?
Yes there is The Guarantee Fund for Victims of the Road Accident, operational since 12 June 1971, and administered, under the supervision of the Ministry of Economic Development, by Consap and run upon delegated authority by insurers appointed every three years by IVASS. The Guarantee Fund provides coverage in three cases of motor accident that otherwise would have not been insured: (i) for accidents caused by unidentified vehicles or boats, but for personal injury only; (ii) vehicles or vessels uninsured for personal injury and for material damage with a deductible, for the latter, of Euro 500,00, and (iii) vehicles or boats insured with companies placed in compulsory administrative liquidation.
In case of professional liability of the brokers, the policyholder can expect to receive compensation from the Liability Insurer of the intermediary. The Broker Professional Indemnity Insurance is mandatory in accordance to the D.P.R. 137/2012 of 7 August 2012 and it is one of the conditions to be meet by natural persons or companies to be registered in the RUI register maintained by IVASS.
How are groups supervised, if at all?
IVASS carries out supervision of financial conglomerates and prudential control over national and cross-border insurance groups along with other EU authorities. As matter of fact, the new regulatory framework introduced by the Solvency II enhance the efficiency and effectiveness of supervision over cross-border groups, reinforce the cooperation among the supervisory authorities of various countries, the exchange of information, the planning and coordination of operational activities.
Do senior managers have to meet fit and proper requirements and/or be approved?
While reviewing the application for an authorization IVASS performs a limited background investigation on the officers and directors the new company to ensure that they all meet the applicable legal requirements. Notably directors, officers, statutory auditors and general directors must all meet the prescribed requirements of probity, independence and trustworthiness according to the relevant Civil Code provisions, of Article 4 of Ministerial Decree n.186/1997 and Ministerial Decree n.162/2000, to ensure sound and prudent management of the insurance or reinsurance company. Article 36 of Decree-Law n. 201 of 6 December 2011 addressed the issue of ‘interlocking directorates’, introducing the prohibition for an individual to be member of two or more boards of insurance companies, financial institutions or banks; that too is controlled by IVASS.
Are there restrictions on outsourcing parts of the business?
Yes, beside the intermediaries, also the loss adjusters are subject to a limited supervision. As matter of fact the Register of Insurance Experts has been taken away from the insurance regulator’s competence and passed on to the Concessionaire for Public Insurance Services (so called Consap), The persons authorized to professionally loss adjusts property damages deriving from motor accident, boats subject to the compulsory insurance, theft and fire must pass an exam before being recorded in the Register.
How are sales of insurance supervised or controlled?
Beside the controls upon intermediaries, IVASS also performs a supervision upon the distribution of the insurance products in accordance to Article 182 of the Italian Private insurance Code.
In particular IVASS ensure compliance with the principles of clarity, recognition, transparency and fairness of advertising and information on the conformity of the insurance contract with the advertising and in the pre-contract negotiations (with the information notice) and the execution of the insurance contract (policy conditions).
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
ISVAP, just before its dissolution and transformation intoIVASS, issued a number of regulations to protect the consumer, and in particular it is worth mentioning the following:
- Regulation No. 40 of 3 May 2012 on mortgages, which defines the minimum requirements for life insurance contracts related to a mortgage or consumer credit as per Article 28, Paragraph 1 of Decree-Law No. 1 of 24 January 2012, amended by Law No. 27 of 24 March 2012; and
- Regulation No. 41 of 15 May 2012, implementing provisions for the organization and creation of procedures and internal controls aimed at preventing the use of insurance companies and insurance intermediaries for the purpose of money laundering and financing of terrorism, in accordance with Article 7, Paragraph 2 of Legislative Decree No. 231 of 21 November 2007.
IVASS followed this regulatory trend in protecting the consumer issuing, on March 14, 2018, a letter to the market inviting all insurers operating on the Italian market to use the “Guidelines on the structure and language of insurance contracts”. These guidelines outline a new, more linear and clear way to draft contractual provisions (by way of an example eliminating the old distinction between "general conditions" and "special conditions", which in the past leads to many misunderstandings) and impose a clarity of language with the objective of making the reading and understanding of the contract more fluid, allowing the consumer to exercise more easily the rights deriving from the same.
Other particular provisions are contained into Section 3 (Articles 10–16) of Council Regulation (EC) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, or territorial jurisdiction within the Italian Republic when the insured is a consumer. There principles have been incorporated also into the national law and as consequence in national disputes between a consumer and a professional insurer, the exclusive jurisdiction if that of the courts of the place where the consumer has his or her residence or elected domicile.
Are the courts adept at handling complex commercial claims?
Yes, all Italian court, being made by professional judges, are able to handle complex commercial claims, including the most complicated reinsurance litigations.
Is alternative dispute resolution well established in the jurisdiction?
In Italy ADR are not generally used to resolve contentious matter, including insurance disputes. This is due to the relatively cheap cost of litigation and the professionalism of the judges.
However article 5 of the Legislative Decree No. 28 of 4 March 2010, imposes compulsory mediation for some specific and listed class of civil and commercial controversies, there including controversies related to: (i) insurance contracts; (ii) medical malpractice; (iii) directors’ and officers’ liabilities; and (iv) banking and financial disputes. Despite the fact the mediation is compulsory it is rarely successful and the parties consider it just a precondition to litigate rather than a real and serious instrument to resolve the dispute.
What are the primary challenges to new market entrants?
Italy offers a great opportunity to well-informed and prudent Insurers. In general, foreign insurers, especially the ones from Common Law traditions countries, enter the market with their home experience and pretend to apply their own wording, which, more often than not, make little or no sense in a Civil Law country as Italy.
Beside this cultural gap, the other problem that new market entrants experience is that they must meet unrealistic budgets set by someone who has little or no knowledge of the market. This situation lead to underwrite bad risks that are available because no one on the national market wants to insure them.
A third and last challenge the new entrants face is that more of than then not they refuse the fact that “when in Rome, you do as the Romans do”. Therefore, impatience and lack of trust might undermine the excellent opportunities of business presented by the Italian Market, and that is especially true for very specific and complex class of business as Medical Malpractice or the Financial Institutions.
To what extent is the market being challenged by digital innovation?
Like every aspect of the modern life digital innovation is playing a major innovative role in the insurance market, and an even greater role wil be played in future.
Digital innovation wil assume a key role not only in the corporate and financial governance of the (re)insurance companies but will be pivotal in meeting the GDPR’s requirements and certainly will simplify and render cheaper the loss adjustment thanks to software platform, commonly shared between claim handlers, loss adjuster, broker and eventually the lawyer.
Moreover digital innovation has permitted the birth of a new generation of Motor insurances based on the “Black Box” installed on the car; this does render more difficult the theft and has positively impacted also upon the costs of the Motor accident claims.
Over the next five years what type of business do you see taking a market lead?
As indicated digital innovation will dramatically affect insurance companies not only in their internal structures, but also will provide an extremely profitable, albeit challenging, source of business, the electronic and cyber insurances with the development of “internet of things” and the “GDPR loss events” will certainly be booming in the next few years.
Another aspect that in Italy might take off in the next five years are Cat-Nat policies. Earthquake/ seaquake coverages are rare and underdeveloped and a technically savvy Insurer could couple the coverage with the currently available computerized systems of early warning for the arrival of a quake with the automatic timely switching off of specific machines sensitive to these natural events like turbines and/or hydroelectric plants.