Italian insurance law was reformed in April 2007 by Economic Development Minister Pierluigi Bersani. The changes - known as Bersani II - have been welcomed by consumers for the additional protection they bring but have been strongly criticised by the Italian insurers’ association, particularly for increasing the cost of non-life policies.
The key changes are:
- banning exclusive agency clauses, minimum prices and maximum reductions
- introducing an annual right to withdraw from non-life insurance policies
- tightening the rules about changing an insured’s risk classification
Further reading: Law No. 40 of 2 April 2007 "Urgent measures to protect consumers, promote competition and develop new economic activities and businesses"
Ban on exclusive agency clauses, minimum prices and maximum reductions
Insurance companies in Italy may no longer enter into exclusive agency agreements for any insurance policies other than life assurance.
Previously, the ban only applied to motor insurance policies.
The Italian Insurance Companies Association ANIA (Associazione Nazionale fra le Imprese Assicuratrici) has sought to overturn the ban in two complaints submitted to the European Commission on 13 December 2006 and 16 February 2007. It argues that, as no other member state prohibits exclusive agency clauses, the ban prevents uniform interpretation and implementation of EU laws on insurance mediation and competition.
ANIA also argues that:
- the ban will increase insurance companies’ costs, which would inevitably be passed on to consumers, since they stand to lose the money they have invested in setting up their own distribution network of exclusive agents
- the ban might create conflicts of interest, further disadvantaging consumers, since agents would have an incentive to sell the policies offering them the largest commission and not the policies best suited to customers’ needs, and competition between insurance companies to pay ever-larger commissions would also result in increased costs for consumers
- the ban undermines the mutual loyalty between agent and insurance company, and stops agents from being genuine agents in the sense that their principal (the insurance company) bears all financial and commercial liabilities of the business they transact on its behalf with consumers, and they only bear liabilities associated with the provision of agency services
The changes also prevent insurance companies from setting ‘minimum prices’ and ‘maximum reductions’ for consumers.
However, it is not entirely clear from the wording of the legislation (or from the similar ban applicable to motor insurance) whether agents’ freedom to set prices and reductions only allows them to lower prices and offer reductions by sacrificing commission or whether they now have an unrestricted right to set prices and offer reductions, with no right for the insurance companies to object. If it is the latter, the ban would not allow insurance companies the financial stability they need to be sure of funding compensation for future accidents out of the premiums they receive.
Further reading: Law 248/06 imposing similar bans on motor insurance policies
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Annual right to withdraw from long-term non-life Insurance
The changes allow insureds in Italy to withdraw without penalty from long-term non-life insurance policies.
The right arises annually on the policy anniversary and requires 60 days’ notice. It applies immediately to policies entered into after 3 April 2007 and, in the case of policies entered into before then, after 3 years from the date of signature. Any provision restricting or excluding this right is void.
Previously, it was only possible to withdraw from policies lasting more then 10 years and only after 10 years had elapsed, unless the policy specified otherwise.
The rationale for making this change is that it removes a restriction on competition by enabling consumers to take advantage of better offers from competitors in subsequent years.
The Italian Insurance Companies Association ANIA argues that long contracts benefit both consumers and insurance companies by providing both stability and convenience. As with life assurance policies, the front-loading of payments to discourage early withdrawal not only facilitates risk pooling but also protects insureds from being reclassified to a higher risk class. It also saves them from becoming subject to new limitations on coverage (such as the exclusion of terrorism risk from buildings insurance cover following September 11).
Because the changes require the right to withdraw to be at no cost to the insured, insurance companies will inevitably move to offer annual policies instead of long-term ones.
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Certification of risk validity - risk class variations
Insureds taking out motor insurance are given a certified class of risk (attestato di rischio). Under the changes, insurance companies may no longer apply a less favourable class of risk to any additional motor insurance policy entered into by the same insured or a family member.
In addition, an insured’s certificate of risk classification must now remain valid for five years whenever their motor insurance is suspended or terminated (for example, for non-use of the relevant motor vehicle). This will enable them to resume insurance with the same risk classification within five years after termination of their previous insurance.
Changes to an insured’s risk classification can only be made as a result of an insured event when their share of liability has been assessed at more than 50%. Where it is not possible to establish that anyone is more than 50% responsible for an insured event, any negative change in risk classification must be shared pro rata between all drivers involved.
The changes also require insurance companies to notify insureds promptly of any negative change in risk classification.
Since such changes were introduced over a year ago, many policy holders have enjoyed cheaper insurance premiums through being given a better risk classification than they would otherwise have been entitled to. This also means that there has been a drop in premiums received by insurance companies for the same period.
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