Legal and regulatory updates

IVASS amends Regulations 40 and 41 on distribution and product disclosure requirements

On 21 June 2024, the Italian Insurance Regulatory Authority (IVASS) published Order no. 147/2020 (the Order) amending and implementing IVASS Regulation no. 40/2018 on insurance distribution (Regulation 40) and Regulation no. 41/2018 on transparency, disclosure and design of insurance products (Regulation 41).

The Order aims to strengthen the information provided to policyholders and simplify the documentation given to policyholders to increase the level of protection in every phase of the relationship with the distributor.

According to IVASS, this protection can be achieved by giving policyholders clear, simple and exhaustive documentation and by eliminating all the misleading and redundant information present in the documentation, as requested by art. 166 of the Code of Private Insurances (the Code).

Here's a brief summary of the main changes introduced by the Order. 

1. Modifications and integrations to Regulation 40 

To limit the amount of information to be given to policyholders, IVASS has introduced a single precontractual form (Modello unico precontrattuale or MUP), one for non-IBIPs (Attachment 3) and one for IBIPs (Attachment 4), by eliminating Attachments 3, 4 and 4-bis (respectively, information on the distributor, information on the distribution of non-IBIPs and information on the distribution of IBIPs) to Regulation 40.

Attachment 4-ter (ie rules of conduct for distributors) to Regulation 40 has also been eliminated. 

When insurance undertakings directly distribute insurance products, they can fulfil their information regarding the policyholder’s protection instrument through the additional IPID. 

2. Modifications and integrations to Regulation 41 

The Order simplifies the additional IPIDs by eliminating redundant elements already contained in the KID/life IPID/non-life IPID or elements that are connected to the implementation phase of the contract (eg how to report a claim) and that can be easily found in the General Terms and Conditions of the contract. 

As a result of the simplifications, the information provided focuses on costs, exclusions and limitations, targeted customer, tax regime, mandatory information pursuant to article 185 of the Code (solvency, complaints, applicable law).

The Order also introduces a limit of three pages for the additional IPIDs, which can be up to four pages in exceptional cases.

In particular for IBIPs, the Order standardizes the terms of the additional IPID with those used in the KID to make it easier to compare them with other products perceived as similar and make the insurance characteristics of the products immediately evident to clients. 

3. Provisions on sustainable finance 

The Order introduces, in both Regulation 40 and Regulation 41, some references to EU regulations on sustainable finance, by completing at a national level all the obligations introduced by EU legislation started by IVASS with the publication of Order no. 131/2023.

The Order was published in the Italian Official Gazette on 4 July 2024 and entered into force the day after publication.

Within 12 months from the Order entering into force, insurance undertakings and distributors have to have the single precontractual form (MUP) for IBPs and non-IBIPs, and the new revised additional IPIDs for life, multi-risk, IBIPs, non-life and motor liability insurance products.

On 12 June 2024, the European Council reached an agreement on strengthening the EU’s rules on retail investor protections.

As you might be aware, the EU retail investment package aims at supporting consumers who wish to invest in capital markets, by better protecting their investments and by providing them with clearer and transparent information.

With the agreement, the Council is now ready to engage with the European Parliament on finalizing the retail investment package. 

The Council proposed several changes to the package: 

1. Inducements: the Council decided to remove the proposed ban on inducements received for execution-only sales (where no advice is provided to investors). A ban is already in place for independent investment advice and portfolio management with limited exceptions.
   At the same time, to avoid potential conflicts of interests, the Council strengthened the safeguards accompanying all inducements with an inducement test that applies where there's no ban on inducements. It has also introduced a new uniform test specifying the duty for advisors to act in the best interest of the client and enhanced transparency and disclosure about what payments are considered as inducements, their costs and their impact on investment returns.
   The Council further reinforced the safeguards by introducing "overarching principles" to be respected when paying or receiving inducements (ie inducements should not incentivize firms to recommend particular products over others, they should not be disproportionate to the value offered and inducements paid to or accepted and retained by entities belonging to the same group should be treated in the same way as others).

2. Value for money: the retail investment package introduces a new concept of value for money, to ensure that investment products are offered to retail clients only if they offer good value for money. Manufacturers and distributors have to assess whether costs and charges related to a product are justified and proportionate with regard to their performance, other benefits and characteristics, their objectives and, if relevant, their strategy.
   The Council agreed that ESMA and EIOPA would develop supervisory benchmarks, which should be supervisory tools to help national competent authorities detect investment products that fail to offer value for money. 

 

Unit linked insurance products – New IVASS rules

On 27 May, the second public consultation ended for IVASS Document No. 2/2024 containing “Provisions on insurance contracts referred to in Article 41 paragraph 1 and paragraph 2 of the Private Insurance Code” (the Document).

The high number of comments the Italian Supervisory Authority received for the first consultation (which opened in March 2022 and ended in June of the same year) led IVASS to launch a second public consultation on the Document. This second consultation also included comments from operators in relation to Discussion Paper No. 1/2022. It was submitted for consultation at the same time as the first consultation of the Document and contained some “Preliminary considerations for future regulatory interventions by IVASS on life products” (the Discussion Paper).

The reforming intervention that, through the Document, the Insurance Authority intends to carry out, was long overdue. The current rules on life insurance policies linked to internal funds or UCITS date back to 2002. Since then, they haven’t undergone any changes of a substantial nature, despite the developments that have taken place in the financial and market legislation and regulation.

At the heart of the initiative is the Supervisory Authority’s intention to implement Article 41 paragraph 5 of Legislative Decree No. 209 of 7 September 2005 (Private Insurance Code, the Code). The Code was introduced as a result of the transposition in Italy of Directive No. 2009/138/EC (Solvency II) through Legislative Decree No. 74 of 12 May 2015. The aim is also to identify a level playing field for all operators, both Italian and foreign, who market class III life insurance products in Italy.

Article 41 paragraph 5 of the Code states that “IVASS may, by regulation, limit the types of assets or reference values to which benefits may be linked, where the investment risk is borne by the policyholder who is a natural person. For insurance contracts whose benefits are directly linked to the value of units of a collective investment undertaking, the provisions established by IVASS are consistent with the provisions of Legislative Decree No 47 of 16 April 2012.”

It’s clear from the wording of the rule (which reproduces the text of Article 133 paragraph 3 of Solvency II) that IVASS’s regulatory power to limit the assets or reference values of linked policies only concerns policies in which there’s an investment risk, which is borne by the policyholder, and if the policyholder is a natural person.

These three conditions must be met cumulatively for IVASS to exercise the regulatory powers referred to in paragraph 5 of Article 41 of the Code. As a result, unit-linked insurance policies that are entered into by legal persons or entities or that provide for a guarantee of investment performance or any other guaranteed benefit are left de facto unregulated. Or at least they’re not covered by the rules set forth in the Document. In fact, they would end up falling within the scope of application of paragraph 4 of Article 41. 

The Document wouldn’t be applicable, as indicated by IVASS itself, to unit-linked policies that provide for a dedicated internal fund (ie a fund in which the premium of a single policyholder is invested). This is because the reference made by Article 133 paragraph 3 of Solvency II and Article 41 paragraph 5 of the Code to mutual funds in which the management of resources is collective.

This seems to restrict the future scope of application of the Document (which, in fact, would mainly apply to linked policies aimed at clients seeking collective management of the premium invested, ie without any customization). But this shouldn’t overshadow certain passages of the Document, undoubtedly innovative and in contrast with the practice established in other European countries, which are raising some concerns. 

First of all, IVASS’s intervention would be based on a reading of the concept of general interest in the insurance sector (that’s not entirely shared at Community level), as represented in the European Commission’s Interpretative Communication on the freedom to provide services. Based on this reading, IVASS would feel entitled to intervene in a sector (that of linked policies with the above-mentioned features) that, according to the Authority, is not harmonised.

By virtue of this conclusion, IVASS would intend to give to Document the nature of a rule of general interest, once it's been published in the form of a regulation. And it would apply to all life insurance undertakings authorized to carry on class III business in Italy. That would include European insurance undertakings operating under freedom of establishment or freedom to provide services regime. This would entail, including for the latter, the obligation to comply with the indications of the Italian insurance supervisory authority as to the assets that may be used as underlying of such policies and the relevant concentration and investment limits.

The latter argument would be in stark contrast with the practice established to date, under ISVAP Circular No. 474/2002, and with the provisions of Article 193 paragraph 1 of the Code. According to the Article, the regulatory power and financial supervision over the underlying assets of unit-linked policies is the responsibility of the undertaking’s home state (ie the state that issued the authorization to operate in class III), rather than the host state, where the operator’s policies are marketed.

But there’s more. Again, based on the assumption that the sector would not be harmonized, IVASS would also qualify as a rule of general interest Article 5 paragraph 1 of the Document, concerning the demographic risk. The presence of demographic risk “[...] appropriately calibrated on the basis of the policyholder’s need for insurance cover [...]” would be necessary to quantify the insurance performance by the company.

The provision, in its current form and qualification as a rule of general interest, would seem to be in line with the most recent case law. So only those linked policies that provide for the assumption of a demographic risk by the insurance company would qualify as life insurance policies.

This would be based on an oriented reading of Article 41 of the Code, which, in fact, doesn’t provide for the demographic risk among the elements qualifying a linked policy as a life insurance policy. Nor would this element be provided for by the Solvency II provisions or be referred to in the relevant EU case law.

In light of the above, IVASS’s position seems even more peculiar.

The Institute would like to qualify the provision as a rule of general interest. As such, it would apply to all operators on the unit-linked policy market in Italy. But the actual presence in the policy of the demographic risk would depend on evaluating the policyholder’s concrete coverage needs. These elements alone (the policyholder’s need for cover and the undertaking’s assessment ) are sufficiently uncertain, as to their presence, not to allow the demographic risk to be considered as key with respect to a provision that one would like to qualify as being of general interest.

Not to mention the provisions in paragraphs 2 to 4 of Article 5 of the Document. They would indicate, only for domestic companies and not for community companies, the criteria on the basis of which to carry out an assessment of the appropriateness of the demographic risk with respect to the features of the product and the reference market. And this would make the provisions discriminatory with respect to Italian life insurance companies, in clear contrast with the intent allegedly achieved by the Institute to create a level playing field valid for all operators in this area.

The initiatives that, also in other European countries, are being taken to highlight the various inconsistencies of the Document, including with respect to the European regulatory framework of reference, are to be welcomed.

 

IVASS Survey on natural catastrophe and sustainability risks for 2024

On 30 June 2024, IVASS launched a survey on the monitoring of natural catastrophe and sustainability risks for 2024, as governed by the Letter to the Market of 27 July 2022. 

The Letter to the Market and the survey are addressed to:

• (re)insurance companies with legal seat in Italy
• (re)insurance companies with legal seat outside the EEA authorized to carry out insurance business in Italy under the right of establishment regime

The method of transmission and the data to be sent to IVASS are set out in the "Operating Instructions for the transmission via the Infostat platform of information relating to the monitoring of risks deriving from ESG factors" (the Operating Instructions) published by IVASS on its website. 

All relevant information must be submitted by 31 October 2024 via the Infostat platform. 

As for the elements of the communication, the Operating Instructions regulate that it consists of two reports: one relating to quantitative data and a second one relating to qualitative data.

The quantitative data to be provided is that represented in the attached .excel file titled "All_2_Schemi_quantitativi.xlsx" (intended solely as an aid to help understand the collection data and must in no way be attached to the final report sent by the insurance companies). It must be transmitted, through the production of an .xml file, according to the specifications set out in the Operating Instructions, by means of ESG surveys. The .xml file produced must be sent in a compressed file (.zip). 

As regards the qualitative data, the insurance companies have to fill in the four Excel sheets contained in the attached file named "All_3_Questionario_qualitativo_rischi_castastrofali_sostenibilità.xlsx," namely: 

• "1_Impresa_segnalante"
• "2_Governance"
• "3_Investimenti" 
• "4_Sottoscrizione"

The .excel file must be sent in a compressed file (.zip) via the ESGQS survey.

To summarize, the communication consists of the following: 

• INFOSTAT ESG survey for quantitative data with .xlm file; 
• INFOSTAT ESGQS survey for qualitative data with .excel file. 

 

Consultation Document no. 4/2024 on Regulation no. 36/2017

On 17 July 2024, the Italian Insurance Regulatory Authority published Consultation Document No. 4/2024 concerning amendments and additions to IVASS Regulation No. 36/2017 (the Regulation). All amendments and additions made to the Regulation only concern the replacement of Annex 10 of the Regulation.

Specifically, the purpose of this replacement is to introduce a new outline of instructions for conducting the survey on the actual prices of third-party motor liability cover for the moped and motorbike sector.

The deadline for public consultation is set at 60 days from the day of publication of the Consultation Document.

Finally, in the Consultation Document IVASS clarifies that the replacement of Annex 10 will come into force from 1 October 2024.

 

Consultation Document no. 5/2024 on IVASS Regulation no. 79/2018 – 17 July 2024

On 17 July 2024, IVASS published Consultation Document No. 5/2024 concerning amendments and additions to IVASS Regulation No. 79/2018 (the Regulation). All amendments and additions made to the Regulation only concern the replacement of Annex 1 of the Regulation.

Specifically, the provisions submitted for public consultation by IVASS concerns the CARD model. This model measures the performance of companies with respect to the cost of claims, the effectiveness of anti-fraud activity and the speed of settling insurance benefits.

IVASS wants to review the CARD model to improve its efficiency. The changes made to the CARD model that are being submitted for public consultation are:

• the elimination of natural CARD claims from the calculation of the average cost; and,
• the calculation of the cost dynamics (property damage and vehicle damage) using claims occurring throughout the country, consistent with the formulation already adopted, as an exception to Order No. 79/2018, for the COVID-19 period.

The deadline for public consultation is set at 60 days from the day of publication of the Consultation Document.

IVASS clarified that the replacement of Annex 1 will come into force from 1 January 2025.

 

Consultation Document no. 6/2024 on ISVAP Regulation no. 13/2008

On 17 July 2024, IVASS published Consultation Document No. 6/2024 concerning amendments and additions to ISVAP Regulation No. 13/2008 (the Regulation).

The purpose of the Consultation Document is to amend the Regulation to adapt its content to the overriding rules that have emerged on the subject of dematerialization of the insurance certificate and digitization and authorization for trial circulation. And it should allow policyholders, again with a view to simplification, to fill in the claim form in computerized mode with electronic signature.

It's clear that IVASS means, through these amendments to the Regulation, to encourage the process of digitization of insurance documents and the correct and timely feeding of the archives referred to in Article 135 of the Private Insurance Code.

Below is a brief summary of the structure of the order (Order) submitted for public consultation:

The Order consists of eight articles.

• Article 1 contains provisions adapting the Regulation to the provisions on the dematerialization of the insurance mark.
• Article 2 makes additions to Article 2 of the Regulation by inserting definitions functional to the understanding of the scope of application of the provisions set out in Articles 4, 5 and 6.
• Article 3 makes changes and additions to article 6 of the Regulation to bring its contents in line with the regulations on test drives and to deal within the same regulation with cases of insurance for test plates, temporary plates and vehicles intended for import or export, and provides for the repeal of article 10.
• Articles 4 and 5 amend and supplement the rules on filling out the claim form. The purpose of the proposed regulations is to give policyholders the option to form the claim event report also as an electronic document.
• Article 6 requires insurance companies to prepare IT applications for the claim event report form to be filled in electronically, and to be signed, after the user has been identified. The provisions on the claim notification are declined in accordance with the need to ensure the equivalence of effects between the document drawn up in paper form and the document produced in computer form, in line with the provisions contained in the Private Insurance Code, in the Digital Administration Code (CAD), as well as in Regulation (EU) No. 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 199/93/EC (eIDAS Regulation), as amended by Regulation (EU) No. 1183/2024 of the European Parliament and of the Council of 11 April 2024, and, therefore, to ensure the provenance of the declarations contained in the complaint form.
• Article 7 sets the deadline for insurance undertakings to comply with the obligation to make available to policyholders services for the digital completion and electronic signature of the claim notification form, ie within 12 months of the Order entering into force.
• Article 8 provides for the publication of the Order.

The deadline for public consultation is set at 70 days.

Finally, in the Consultation Document IVASS doesn't clarify what the effective date of these changes will be.

 

Letter to the Market on the applicability of the obligations under Regulation (EU) No. 269/2014 of the European Council of 17 March 2014

On 26 July 2024, IVASS published a letter to the market (the Letter) concerning obligations imposed on insurance undertakings and insurance intermediaries pursuant to Regulation (EU) No. 269/2014 of the European Council and, in general, pursuant to "EU regulations" as defined in Article 1, paragraph 1, letter h), of Legislative Decree No. 109/2007.

The Letter is addressed to:

• insurance undertakings with head office in Italy;
• Italian branches of insurance undertakings with their head office in a non-EEA member state;
• insurance undertakings with a registered office in another member state of the EEA operating in Italy under the right of establishment or freedom to provide services regimes; and
• insurance intermediaries registered in the Single Register of Intermediaries kept by IVASS and in the List attached to the Register.

With regard to the content of the Letter, IVASS referred to the press release issued on 7 March 2022 entitled "Reminder of compliance with the restrictive measures adopted by the EU in response to the Russian military aggression in Ukraine." In the press release the Authority had clarified that everyone – and therefore also insurance undertakings – has to comply with the general prohibition on making available, directly or indirectly, funds or economic resources to natural or legal persons subject to restrictive measures adopted by the EU or by the Italian Ministry of Economy and Finance. In the Letter IVASS recalled that all insurance undertakings and all insurance intermediaries have to put in place procedures and controls to identify funds and economic resources subject to freezing by monitoring (first and foremost) the updating of the list of persons against whom restrictive measures are applied.

In addition, according to the set of freezing measures adopted at European and national level – again for anyone, therefore also for insurance undertakings – companies are prohibited from engaging in any activity on national territory with subjects against whom restrictive measures are applied (with the exception of activities authorized by the Financial Security Committee).

However, insurance undertakings and intermediaries (including the branches in Italy of foreign companies and intermediaries) operating exclusively in non-life insurance classes are not addressees of the obligation to notify the Financial Intelligence Unit (FIU) of the freezing measures applied. Nevertheless, with exclusive reference to the restrictive measures adopted as part of the sanctions regime against Russia, pursuant to Article 8 of Regulation (EU) No. 269/2014 all insurance undertakings and all insurance intermediaries, even if they operate in the non-life insurance classes, have to make the notifications concerning the existence of assets and economic assets traceable to the persons against whom restrictive measures are applied. Notifications must be submitted to the FIU using the appropriate form published on its website.

 

Bank of Italy, COVIP, IVASS and the Ministry of Economy and Finance (MEF) issue instructions on exercising enhanced controls on intermediaries to counter the financing of companies producing anti-personnel mines, cluster munitions and submunitions

On 26 July 2024 the Bank of Italy, COVIP, IVASS and the MEF issued instructions on exercising enhanced controls over the operations of insurance intermediaries to counter the financing of companies producing anti-personnel mines, cluster munitions and submunitions (the Order).

Law No. 220/2021 (the Law) introduced, as of 23 December 2021, the prohibition for insurance intermediaries to finance Italian and foreign companies, which, directly or through subsidiaries or associated companies pursuant to Article 2359 of the Italian Civil Code, are engaged in the production or sale of anti-personnel mines, cluster munitions and submunitions, of any nature or composition, or parts thereof.

The same Law clarifies, in Article 1, paragraph 4, that foundations and pension funds are prohibited from investing their assets in companies carrying out such activities.

The Order implements the provisions of the Law, with regard to the supervisory bodies' task of adopting, together, special instructions for exercising enhanced supervision over the activities of the insurance intermediaries they supervise.

The Order applies to the insurance intermediaries referred to in Article 2, paragraph 1, letter a, of the Law, namely:

• Italian securities brokerage firms (SIMs)
• Italian banks
• Italian asset managers
• Italian electronic money institutions
• Italian payment institutions
• entities registered in the list referred to in Article 111 of the Consolidated Banking Text (the TUB)
• financial intermediaries registered in the register referred to in Article 106 of the TUB
• Poste Italiane S.p.A. for Bancoposta activity
• Cassa Depositi e Prestiti S.p.A.
• branches established in Italy of SIMs, asset managers, banks, electronic money institutions and payment institutions with their registered office in another EU country or in a non-EU country
• insurance undertakings
• reinsurance undertakings and branches established in Italy of insurance undertakings and reinsurance undertakings with their head office and central administration in another EU or non-EU country
• Italian stockbrokers
• Italian banking foundations
• Italian pension funds

Insurance intermediaries must adopt appropriate procedural safeguards in accordance with a risk-based approach and on the basis of the principle of proportionality, appropriately formalized in internal regulations and aimed at ensuring compliance with the prohibition on financing the companies listed in Article 1 of the Law.

The safeguards must include at least:

• the obligation to consult "publicly available lists of companies producing anti-personnel mines and cluster munitions and submunitions" (see Article 4 of the Law) prior to funding;
• procedures for assessing the risk of involvement of the recipient of the financing in the activities referred to in Article 1, paragraph 1, of the Law, in light of, for example, the recipient's activity, registered office, place of operation; and,
• establishing adequate information flows aimed at ensuring that the bodies have full knowledge and governance of the organizational structures adopted to verify compliance with the prohibition of financing, as well as timely knowledge of any breaches of the prohibition.

The control of compliance with the prohibition may also be carried out by the supervisory bodies through inspections performed as part of their ordinary supervisory activities in accordance with their respective competences.

The supervisory bodies also assess the effectiveness and appropriateness of the activities carried out by the bodies and corporate control functions, where provided for or established, of the insurance intermediaries (ie by the compliance function and the risk management function) with reference to the checks carried out, the results obtained, any weaknesses detected, and the corrective measures taken.

The Order will enter into force the day after its publication in the Italian Official Gazette.