A Q&A guide to insurance and reinsurance law in Italy.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Italy.
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This Q&A is part of the PLC multi-jurisdictional guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-mjg.
Italy has a well-established and concentrated insurance market in which Assicurazioni Generali (the largest Italian company and one of the oldest and most globalised) holds a 25% market share. According to the annual report of the supervisory authority on insurance companies (Istituto per la vigilanza sulle assicurazioni private e di interesse collettivo) (ISVAP), as of 31 December 2010, there were 153 companies incorporated under Italian law, comprising:
Life insurance companies: 61.
Non-life insurance companies: 76.
Composite companies: 14.
Business branches with head offices in a non-EU country: three.
There were also 82 established business branches in Italy with head offices in other EU member states, and 959 European businesses operating under the freedom to provide services rule (see Question 10, Insurance/reinsurance providers).
Of the branches licensed to pursue business in Italy, their head offices were based in:
The UK: 36.6%.
Austria and Luxembourg: 4.9%.
The Netherlands and Spain: 2.4%.
Liechtenstein and Denmark: 1.2%.
In 2010, Italian and foreign portfolio gross premiums increased by about 6.9%, totalling EUR129 billion (as at 1 January 2012, US$1 was about EUR0.8) (compared with EUR121 billion in 2009), of which EUR127 billion concerned the Italian portfolio (EUR119 billion, in 2009). Direct Italian business for 2010 totalled EUR126 billion (a 6.9% increase compared to 2009).
The premium income from non-life insurance business was EUR36 billion in 2010 (a 2.3% decrease compared to 2009), and from life insurance business was EUR90 billion (an 11% increase compared to 2009).
According to the ISVAP annual report, in 2010 reinsurers expected to cede 4.8% of the estimated gross premiums written in reinsurance, that is, EUR5.052 billion (a 3.8% increase compared to 2009).
A notable trend observed in 2010 concerns the upsurge of premium income from class III products (unit-linked and index-linked policies) (a 58.3% increase compared to 2009), after a drop in 2007.
A general trend concerned the integration of banking, finance and insurance services. Bank insurance represents the most used insurance policy distribution channel (in 2010, banks and post offices distributed 60.3% of life insurance policies), and financial and insurance activities are increasingly overlapping. However, this integration has resulted in what the supervisory authorities consider to be conflicts of interests. On 6 December 2011, one year from when the relevant measure had been published for public consultation, banks and financial intermediaries selling borrower insurance tied with mortgages or other credit facilities were definitively banned from being the seller and the beneficiary of the borrower insurance at the same time (Article 1, ISVAP Resolution No 2946 of 6 December 2011). Further, under Article 28 of Law Decree No. 1 of 24 January 2012 (expected to be converted into law at the time of going to print), banks and financial intermediaries selling life insurance tied with mortgages or other credit facilities must provide borrowers with the estimate of at least two different insurers. In any case, the borrower is free to choose the market's most convenient life insurance that must be accepted by the bank or other financial intermediary without the latter being able to modify the terms and conditions regulating the mortgage loan or other credit facility.
Due to the implementation of Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate (Supplementary Supervision Directive), ISVAP, the Bank of Italy and the Italian supervisory authority on financial markets (Commissione Nazionale per le Società e la Borsa) (CONSOB) have recognised six large Italian financial conglomerates. Three of these, Generali Group, Mediolanum and Unipol Gruppo Finanziario, are conglomerates conducting most of their business in insurance, which are subject to ISVAP's supplemental supervision. On a global scale, the International Association of Insurance Supervisors (IAIS), of which ISVAP is a member, has started work to define the methodologies to be used to identify the systematically important financial institutions (SIFI) in the insurance sector. On 4 October 2011, IAIS also enacted the revised Insurance Core Principle, which forms the basis for the assessment of national legal systems by the International Monetary Fund (IMF).
Another notable insurance trend is the recent success of insurance companies operating online and that of specialised websites comparing insurance products, especially to offer borrower insurance and motor liability insurance, resulting in reduced costs for consumers.
In 2010 ISVAP received a total of 35,213 complaints (a 9% increase compared to 2009) and 1,939 questions and inquiries (a 14% increase compared to 2009) (ISVAP annual report).
306 complaints (compared to 69 in 2009) concerned insurers in administrative compulsory winding up proceedings. This increase is linked to a new case of business disruption in 2010.
The sharp increase in complaints received over the last two years has mainly arisen from the financial crisis which began in 2008 and from the growing stress affecting the motor vehicle liability field, both in the underwriting and settlement phase.
The questions and inquiries mainly regarded life insurance classes (893), motor liability insurance (641) and other non-life insurance classes.
The legislation regulating insurance and reinsurance businesses consists of the Private Insurance Code (adopted by Legislative Decree No. 209/2005 and in force since 1 January 2006). It is a comprehensive law comprising 355 Articles, mainly regulating:
Insurance and reinsurance companies.
Insurance and reinsurance business activities.
The Private Insurance Code allows ISVAP to issue regulations in specific areas of insurance law (of which 39 regulations have already been enacted). The Private Insurance Code contains important provisions concerning the disclosure of information under insurance contracts and the policyholder's protection (such as Article 185).
Further insurance contract rules are listed in Articles 1882 to 1932 of the Civil Code of 1942 (Civil Code).
Article 2 of the Private Insurance Code lists six classes of insurance for life insurance business and 18 classes of risks for non-life insurance business. Insurance and reinsurance companies must limit themselves to life insurance or non-life insurance classes. The only exception is the simultaneous offering life insurance, and accident and sickness insurance classes (Article 11, Private Insurance Code).
Article 5 of the Private Insurance Code sets out the functions of ISVAP, which supervises the insurance sector by exercising its powers to enable, prescribe, investigate, protect and enforce. ISVAP:
Adopts all regulations necessary to properly and prudently manage insurance and reinsurance companies. For reasons of transparency and fairness, it discloses all appropriate recommendations or interpretations.
Performs the activities necessary to promote an appropriate degree of consumer protection and to provide information on the insurance market, including:
statistical and economic surveys;
gathering input to formulate insurance policy lines.
Promotes collaboration with other member states' authorities to make supervision over insurance and reinsurance businesses complete, effective and consistent, in line with EU law procedures.
Insurance is a contract whereby the insurer, on payment of a premium, binds itself to either (Article 1882, Civil Code):
Compensate the insured party, within agreed limits, for damage caused to the insured by an accident.
Pay a principal sum or an annuity on the occurrence of an event contingent on human life.
Reinsurance contracts also provide for the transfer of risk from the ceding insurer to the reinsurer. However, while the parties of an insurance contract are usually a consumer and a (professional) insurer, in reinsurance both the contracting parties are professionals and there is no direct relationship between the (direct) insured and the reinsurer. Although market practice has led to the emergence of certain typical clauses (see Questions 4 and20), Italian case law provides that reinsurance treaties (unlike insurance agreements) are not contracts made according to standard forms.
Reinsurance also makes a distinction between proportional and non-proportional reinsurance:
Proportional reinsurance: the reinsurer always covers the same quantity of risk, irrespective of the amount of indemnification paid by the insurer.
Non-proportional reinsurance: the reinsurer only pays indemnification that exceeds a certain agreed threshold.
Reinsurance must also be distinguished from co-insurance, which occurs when the same insurance, or insurance against risks relating to the same property, is split among more than one insurer in specified shares. In that case, each insurer is only liable for payment of the indemnity in proportion to that insurer's share, even if there is only one contract signed by all the insurers (Article 1911, Civil Code).
Insurance contracts are regulated by the Civil Code and Article 2 of the Private Insurance Code lists the classes of insurance for life and non-life insurance businesses. All insurance contracts issued or entered into must be associated with these classes.
A general principle of civil law is contractual autonomy, under which the parties can freely determine the contract's contents, within legal limits. This principle has favoured the emergence of insurance contracts used worldwide which are drafted on the basis of international market practice, such as:
"Contractor's all risks" insurance policies.
Environmental liability insurance.
Specialised coverage for ultra-hazardous activities.
Insurance contracts marketed in Italy must be accompanied by an information note containing necessary information, other than advertising, relating to product and insurance company characteristics, to enable policyholders and insured persons to understand:
Contractual rights and obligations.
Where appropriate, the company's financial position.
Under Italian law, unit-linked and index-linked insurance policies are characterised as having certain features associated with life insurance contracts and other features associated with financial products. They are marketed in Italy accompanied by a prospectus (rather than an information note) and CONSOB (rather than ISVAP) is responsible for supervising these policies (see Question 2, Regulatory bodies).
Types of contracts that have similar economic functions to insurance policies but must not be confused legally include:
Guarantees issued by banks, which must be differentiated from non-life insurance contracts, such as suretyships, issued by insurers (Article 2, paragraph 3, No. 15, Private Insurance Code).
Derivatives, such as credit default swaps, which are considered to be financial rather than insurance products. Since 2003 Italian insurers cannot use credit derivatives or notes issued in connection with securitisation as reference entities for index-linked policies (see above, Unit-linked and index-linked insurance policies).
Italian insurers can be incorporated as joint-stock companies (società per azioni), co-operative companies or mutual insurance companies (società di mutua assicurazione) whose units are represented by shares, or within the framework of a European company (see Question 9, Insurance/reinsurance providers).
Insurance and reinsurance activities are reserved activities and their contracts must be documented in writing. Insurance and reinsurance companies, for example, can both be incorporated as joint-stock companies, and administrative compulsory winding up is the same for both.
However, Directive 2005/68/EC on reinsurance (Reinsurance Directive) has been implemented through the Private Insurance Code. This introduces many differences between insurance and reinsurance companies, such as the possibility of using special purpose vehicles (SPVs) to carry out reinsurance business activities. SPVs cannot be used to carry out insurance business activities.
There is a legal difference between what a regulated insurance entity can do and what an affiliate of a regulated insurance entity can do. Insurance companies may belong to either insurance or reinsurance groups or to financial conglomerates. In obtaining the required ISVAP licence, insurance and reinsurance companies must specify which classes of life or non-life (re)insurance they intend to offer, and they can only undertake activities that are reasonably ancillary to the (re)insurance business. However, non-insurer affiliates can carry out non-insurance business.
The transfer of risk from the insured party to the insurer is an inherent feature of the insurance contract (Article 1882, Civil Code). There are no limits or restrictions on the transfer of risk. However, under general contract law the contract will become void if the purpose of the contract is contrary to mandatory rules or because the purpose is unlawful (Article 1418, Civil Code).
ISVAP grants insurance companies authorisation to operate on meeting certain conditions, including the following:
The company is incorporated as a joint-stock company, a co-operative company or a mutual insurance company whose units are represented by shares, or within the framework of a European company.
The applicant company has its management and administrative offices in Italy.
The capital or guarantee fund is:
fully paid up;
no less than a specific minimum amount varying between EUR1.5 million and EUR5 million (according to the single classes of insurance); and
exclusively in cash.
The company submits a business plan, together with the memorandum and articles of association, describing the initial activity and the organisational and management structure. This plan must be accompanied by a technical report signed by a certified actuary, setting out the criteria for drawing up the scheme of operations and estimating costs and revenues.
The holders of qualifying holdings meet specific good standing requirements (Article 77, Private Insurance Code).
The persons charged with administration, management and control functions meet specific professional, good standing and independence requirements (Article 76, Private Insurance Code).
There are no close links between the company or other group entities and other natural or legal persons, which may prevent the effective exercise of supervisory functions.
The company discloses the name and address of the claims representative appointed in each of the other EU member states, if the risks to be covered fall within classes of motor vehicle liability and sea vessel liability, other than carrier's liability.
Reinsurance companies must be licensed. The requirements necessary to obtain this authorisation are similar to those for insurance companies (except the minimum share capital is between EUR3 million and EUR5 million).
Insurance intermediaries must be authorised by ISVAP. They are listed in separate sections of the Single Register of Insurance Intermediaries. Their registration requirements (set out in the Private Insurance Code and in ISVAP Regulation No. 5/2006) vary, depending on whether the subjects are natural persons or companies (for example, individuals must pass a qualifying examination). Natural persons and companies enrolled in any section of the Single Register of Insurance Intermediaries must take out professional indemnity insurance for their activity for at least EUR1 million applied to each claim, and an aggregate EUR1.5 million per year for all claims, valid throughout the EU, for damages arising from professional negligence and misconduct by:
Any other persons for whom the intermediary is legally liable.
A person must enrol in a specific list held by ISVAP to engage in the professional activity of a loss adjuster, consisting of assessing and estimating material injuries resulting from the use of, theft of, and fire damage to motor vehicles and sea vessels.
The licensing requirements in Question 8 apply exclusively to Italian insurance and reinsurance companies. Unauthorised insurers are prohibited from participating in the insurance business. However, different rules apply depending on whether the provider has a head office in another member state.
Head office in another member state. Freedom of services is a fundamental principle of the Treaty on the Functioning of the European Union (TFEU). Home country control and co-operation among European supervisory authorities (ESAs) enforces this principle in the banking, financial and insurance sectors. Consequently, under the Private Insurance Code, insurance or reinsurance companies with head offices in another member state can carry on their activities in Italy by setting up a branch in Italy under the right of establishment (Article 23) or provide services in Italy under the freedom to provide services (Article 24). In both cases, a new formal licence from ISVAP is unnecessary.
Under freedom of establishment, the supervisory authority of the member state where the insurance company is headquartered must send ISVAP a notification with the information and conditions required by EU law. Within 30 days of receiving notification, ISVAP must inform the home member state's supervisory authority of the general provisions that the insurance company must observe when pursuing business. The insurer can set up its branch and start business in Italy as soon as either:
It receives the notification by ISVAP from the home supervisory authority.
If no notification is received, on expiry of the 30-day deadline.
The branch's authorised representative must be empowered to:
Represent the insurance company in connection with all Italian authorities and courts.
Conclude and underwrite the contracts and the other documents relating to the business pursued in Italy.
Under freedom to provide services, the insurer can begin its activity as soon as ISVAP acknowledges receipt of notification by the home supervisory authority.
Head offices in non-member state. Insurance companies with head offices in a non-member state are prohibited from carrying on life or non-life businesses in Italy under freedom of services, but they can operate exclusively under the right of establishment rules (Article 28, Private Insurance Code). In contrast, reinsurers with head offices in a non-member state can carry out their business in Italy either under the freedom of establishment or under the freedom of services (Article 61, Private Insurance Code). Consequently, formal ISVAP authorisation is not required under freedom of services.
Similar rules concerning the right of establishment and the freedom to provide services in the EU also apply to insurance intermediaries.
Owners and persons who control or hold a relevant stake in insurance companies are reviewed by ISVAP to determine their qualifications to control an insurance company. They must meet specific good standing requirements. However, there are no general limitations or prohibitions against foreign entities having an ownership interest in an Italian insurance company. ISVAP issues authorisation for any acquisition in Italian insurance companies on the acquirer meeting conditions of properly and prudently managing the insurance or reinsurance company, in consideration of the possible impact of the operation on the stability, efficiency and protection of the entity's policyholders.
The Minister of Productive Activities must, by enacting a regulation, establish good standing requirements for holders of qualifying holdings (Article 77, Private Insurance Code). However, in practice this regulation has not yet been enacted.
Licensed insurance intermediaries are reviewed for their qualifications to serve as a licensee (see Question 12).
Any person intending to become a holder of a qualifying holding in an insurance or reinsurance company must inform ISVAP. Prior ISVAP authorisation concerning acquisition of a holding in an insurance company is required in the following situations:
Any acquisition of qualifying holdings in an insurance or reinsurance company where, after taking the shares already owned into account, participation greater than 10% of the company's share capital represented by voting rights is involved.
The acquisition of control of a company that owns holdings in an insurance or reinsurance company. ISVAP authorisation also applies to the direct or indirect acquisition of control through a contract with the insurance or reinsurance company or a provision (such as a shareholders' agreement) in its memorandum and articles of association.
All potential acquirers are required to file an application containing information such as:
A list of directors.
A report on the legal and financial structure of the group to which the proposed acquirer belongs.
The targets of the acquisition.
Financing details of the acquisition.
Directive 2007/44/EC amending Directive 92/49/EEC and Directives 2002/83/EC, 2004/39/EC, 2005/68/EC and 2006/48/EC as regards procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector substantially tightened the statutory period in which ISVAP must grant or refuse its authorisation. Currently ISVAP must grant or refuse its authorisation within 60 days, running from the date on which ISVAP notified to the applicant the start of the authorisation proceeding.
Insurance companies authorised to engage in life insurance or non-life insurance business must conduct their activities through appropriate administrative and accounting procedures and an adequate internal control system.
To prudently and effectively manage insurance companies it is essential to monitor the insured risks and ensure sufficient technical reserves for life and non-life classes of insurance. The actuaries must assess whether technical provisions are sufficient. They perform a permanent control function to enable the insurance company to take all necessary actions promptly. Assets belonging to the insurance company must cover technical reserves (reserves maintained to meet future claims or losses). When choosing representative assets such as investments (for example, bonds and other types of debt securities, equity and units of harmonised Undertakings for Collective Investment in Transferable Securities (UCITs), loans, real estate and alternative investments), debts and claims, tangible fixed assets and bank deposits, the insurance company considers the:
Type of risks and commitments accepted.
Need to secure the safety, yield and marketability of its investments (which must be adequately diversified within certain thresholds set out by ISVAP Regulation No. 36 of 31 January 2011).
Insurance companies must also:
Always possess adequate solvency margins in relation to their entire business in Italy.
Supervise the insurance intermediaries who market their insurance policies.
Pay a yearly supervision contribution to ISVAP.
Draw up their financial statements according to the relevant outlines prepared by ISVAP and regularly send ISVAP all requested data, information, acts and documents.
Different regulations apply to:
Intra-group transactions. Where an intra-group transaction may have an impact on the insurers' prudent and effective management, it must be performed in line with market conditions. ISVAP's authorisation is required before entering into an intra-group transaction exceeding certain thresholds. In particular, the following are submitted to ISVAP's prior authorisation (ISVAP Regulation No 25 of 27 May 2008):
intra-group transactions of economic value exceeding certain thresholds and concerning loans, guarantees, control participations, real estate, bonds and non-control participations that are not negotiated on regulated markets;
intra-group transactions carried out at economic conditions that are not in line with market conditions.
The issue of equity or debt securities. In that case, the competent authority is CONSOB. A public offering of financial instruments must be accompanied by a prospectus drafted pursuant to Law Decree No 58 of 24 February 1998, as subsequently amended (Consolidated Act on Finance), and CONSOB Regulation on Issuers.
The ongoing requirements of insurance intermediaries vary depending on the section of the Single Register of Insurance Intermediaries in which they are registered.
However, there are some common obligations:
Premiums paid to intermediaries and the amounts to be used for claims payments and managed through the intermediary must be kept in separate accounts.
Insurance intermediaries must:
pay a yearly supervision contribution to ISVAP;
renew their professional indemnity insurance policy annually;
regularly update their professional knowledge.
Loss adjusters must comply with the ongoing requirements set out by ISVAP Regulation No. 11/2008. In particular, they must be enrolled in a register held by ISVAP and must act with due care, fairness and professionalism.
ISVAP supervises the technical, financial and assets and liabilities management of insurance and reinsurance companies, and their compliance with the applicable insurance laws and regulations. To achieve this, ISVAP can:
Order the production of documents.
Order the performance of necessary controls.
Sanctions for non-compliance with applicable legal and regulatory requirements include:
Civil fines and penalties.
Suspension or revocation of the insurer's licence.
Imposition of a cease and desist order.
Moreover, natural and legal persons, as well as consumer organisations having a legitimate interest in protecting consumers, may file complaints with ISVAP about non-observance of the applicable rules of conduct by insurers, reinsurers, insurance intermediaries and loss-adjusters, pursuant to ISVAP Regulation No 24 of 19 May 2008 on complaints (Article 7, Private Insurance Code).
Finally, insurance contracts concluded with an unauthorised company or with an insurer prevented from concluding new business are void. In serious cases, ISVAP may appoint a receiver to the insurance company, and the receiver can take possession and control of the insurer's property and businesses. Criminal penalties can apply to intentional conduct, such as pursuing insurance business without authorisation.
There are similar penalties for insurance intermediaries, including suspension or revocation of the intermediary's licence (see above, Insurance/reinsurance providers).
There are similar penalties for loss adjusters, including suspension or revocation of the loss adjuster's licence (see above, Insurance/reinsurance providers).
All individuals who buy insurance must have an insurable interest in the coverage.
In addition, the civil law imposes general contractual restrictions on selling insurance contracts to persons who do not have the capacity to perform legal acts (for example, because they are minors or have been declared interdicted because of their insanity or disability). The general legal provisions on defective consent (such as mistakes, duress and fraud) resulting in annulment also apply to insurance contracts.
Reinsurers are legally required to have an adequate internal control system in the same way as insurers (see Question 13, Insurance/reinsurance providers). The extent to which a reinsurer can monitor claims, settlements and underwriting of the ceding company is usually set out in the reinsurance contract. Reinsurance contracts generally require ceding companies to provide the reinsurer with recurring reports containing information on claims and settlements reported or paid in a certain period. Generally, the reinsurer's monitoring of the ceding company is conducted according to market practice standards.
Disclosure and notification obligations are set out in the reinsurance contracts negotiated between the parties.
Insurance laws and regulations provide for a detailed set of contractual documentation that varies depending on the kind of products offered. Italian insurance companies and foreign insurance companies carrying on business in Italy under the freedom of establishment or the freedom of services rules must submit the documentation to policyholders, before concluding the contract. This includes:
An information note containing the policy declarations, which identifies:
the insured party;
the insured party's address;
the insuring company;
what risks or property are covered;
the policy limits;
any applicable deductibles;
the coverage clauses, which describe the covered perils, or risk assumed, and describes the nature of the coverage.
General terms and conditions of the insurance policy together with the special insurance clauses, describing the rules of conduct, duties and obligations required for coverage. These documents also usually contain the exclusion clause, which limits coverage by describing property, perils, hazards or losses arising from specific clauses which are not covered by the policy.
A glossary with relevant definitions.
The insurer's proposal form that must be completed with the data of the policyholder, the insured party and the beneficiaries of the insurance policy.
Life insurance policies also contain a synthetic schedule, which summarises the most relevant provisions of the policy. An informative prospectus, drafted by the issuer according to CONSOB outlines, must accompany the offer of financial products issued by insurance companies.
The most common clauses in insurance policies differ between life insurance and non-life insurance policies. In both cases, however, provisions concerning the following play a crucial role in defining the insurer's obligations:
The insured risk.
In addition, insurance policies usually include a warning of the legal provision that misrepresentations or false representations by the insured can affect the validity of the contract (Articles 1892 and 1893, Civil Code).
Commonly found clauses in life insurance policies include certain statements from the insured on the insured's health.
Treaty reinsurance is by far the most common type of reinsurance in Italy. In 2010, proportional treaties amounted to EUR3.65 billion of premiums and non-proportional treaties amounted to EUR0.57 billion. Facultative reinsurance amounted to EUR0.832 billion.
International business practice has led to the emergence of several standard reinsurance clauses. Reinsurance contracts written in Italy or by Italian insurers also usually contain common clauses typical of international market practice, such as:
Right to business management.
Follow the fortune.
Notice of loss and loss settlement.
The offset clause. This provides that where the reinsurer or reinsured is put into forced administrative liquidation, debts and claims resulting, at the end of liquidation, from the closing of accounts relating to more than one reinsurance contract, are offset against each other (Article 1931, Civil Code).
The reinsurer's right to take part in the underlying adjustment is not a common clause in reinsurance contracts (at least not under Italian law agreements). This is because a reinsurance contract does not create a relationship between the (direct) insured and the reinsurer, except for special laws relating to privileges in favour of the policyholders as a group (Article 1929, Civil Code).
Insurance contracts are usually mass market contracts containing standard conditions. In the insurance business, there are usually imbalances between the insurer and the insured party. However, to counteract this, insurance policies have an implied duty of good faith, which requires the parties to engage in mutual fair dealing. The duty of good faith forms the basis of the Civil Code's provisions concerning material change in risk (concerning whether the insurer is required to cover the risk), as well as the sanctioning of misrepresentations by the insured party.
In addition, before conclusion of and during the term of the contract, insurance companies and intermediaries must (Article 183, Private Insurance Code):
Act with diligence, fairness and transparency towards policyholders and insured persons.
Acquire from policyholders the information necessary to evaluate their insurance or pension needs and act so that they are always appropriately informed.
Make arrangements to identify and prevent (where reasonably possible) conflicts of interest and, in case of conflict, alert policyholders of the possible adverse effects. They must also manage conflicts of interest to exclude any detrimental consequences for policyholders.
Achieve independent, proper and prudent financial management and take adequate measures to safeguard the rights of policyholders and of insured persons.
Insurers must also comply with precise drafting criteria. For example, clauses setting out forfeitures, voidness, limitations of coverage or costs to be borne by the policyholder or insured party must be shown in highlighted text.
In contrast with insurance contracts, reinsurance treaties are entered into between professional parties and are very detailed in outlining the mutual obligations.
Several legal provisions supplement consumer protection for the insured party (for example, insurance policies offered in Italy must be written in Italian).
Generally, non-life insurers must compensate the insured party for damage resulting from the accident, in the manner and to the extent contractually stipulated. In addition, under the Consumer Code, clauses such as those that require the insured party to produce documents that cannot reasonably be used to evaluate the grounds of the claim are void.
An important protection granted to the insured party under life insurance policies is the right to withdraw. This can be exercised by the policyholder within 30 days from the time when he was informed the contract had been concluded.
Examples of standard terms and outlines of information notes are usually prepared by ISVAP (or by CONSOB for financial products issued by insurance companies). The Italian Association of Insurance Companies (Associazione Nazionale fra le Imprese Assicuratrici) (ANIA) (see box, Main insurance/reinsurance trade organisations) is active in providing its members with standard insurance policies.
An insured party can make a claim to the insurer if it incurs a loss within policy limits, which is not covered by policy exclusions.
In relation to property damage insurance, within three days from when the accident occurred or from when the insured party had knowledge of the accident, the insured party must give notice of the accident to the insurer or the agent with power to contract (Article 1913, Civil Code). Italian case law, such as Corte di Cassazione (Italian Supreme Court), Sezione III, No. 24733 of 28 November 2007, however, has clarified that late notice does not necessarily mean that insurance coverage is forfeited. Insurance coverage is only forfeited in cases of the insured's fraud, while negligent delay triggers a reduction of the indemnity depending on the prejudice suffered by the insurer.
There are limited circumstances where a third party can make a claim under an insurance policy. Typically, the third party must be named as an additional insured party in the policy or contractual terms. For example, if the insured party dies, the beneficiaries of a life insurance policy have the right to obtain the payment from the insurer under the policy conditions. Third parties can claim under the insurance policy if the claim has been assigned or subrogated.
Claims for payment of premium instalments are limited to one year from maturity of each instalment (Article 2952, Civil Code). Other claims arising from an insurance contract have a one-year limitation period, and those arising from a reinsurance contract have a two-year limitation period from the day when the fact on which the right is based occurred. In third party liability insurance, the limitation period runs from the day when the injured third person requested compensation from the insured party or brought an action against him. Notice to the insurer of the claim of the injured third person, or of the action brought by him, suspends the limitation period until the injured person's claim has been liquidated and made collectible.
A reinsurance contract does not create a relationship between the insured party and the reinsurer, except for special legal provisions relating to privileges in favour of the policyholders as a group (Article 1929, Civil Code). However, this provision can be disapplied: in line with international market practice, in Italy some reinsurance contracts may contain cut-through clauses under which the direct insureds can enforce the contract against a reinsurer (see Question 31).
Different rules do not apply if the insurer is insolvent or otherwise cannot provide coverage, and there are no governmental schemes that provide compensation if the policyholder cannot claim.
Breach of insurance policy is considered a breach of contract. The remedy for any breach of contract is the right to sue (or arbitrate if required by the contract) to recover losses. According to Italian law, there are no specific remedies where insurance companies act in bad faith. As a general principle of contract law, when a contracting party acts in bad faith, depending on the circumstances, the counterparty can claim either that the contract is void or for damages (Articles 1439 and 1440, Civil Code).
Punitive damages are not insurable in Italy.
Italian statutory law does not require excess (re)insurers to drop down in case of the primary (re)insurer's insolvency. However, the Private Insurance Code sets out other safeguards, reorganisation and winding-up measures for Italian insurance and reinsurance companies. In particular, depending on the severity of the circumstances, ISVAP can appoint a commissioner to fulfil individual acts or a provisional administrator.
In addition, the Minister of Productive Activities, on ISVAP's proposal, can order the administrative and control bodies of the insurance or reinsurance company and/or the insurer or reinsurer itself to be compulsorily wound up when:
There are serious administration irregularities or serious violations of rules of law, administrative provisions or articles of association regulating the insurance or reinsurance company's activity.
Serious financial loss is foreseen.
Excess coverage cannot "drop down" to provide coverage at levels concerning which the existing coverage is insolvent (see Question 29).
The right to set-off mutual debts and credits recognised in a forced administrative liquidation of the reinsurer or the reinsured is recognised under Italian law (Article 1931, Civil Code) (see Question 19).
Insurance companies are subject to IRES at 27.5%. The IRES taxable basis is calculated by applying certain adjustments under tax law to the result of the profit and loss account. Interest expenses incurred in any tax year are deductible up to 96% of their amount.
Specific rules apply to insurance companies:
The change in value of compulsory technical reserves is generally included in the IRES taxable basis, up to the maximum amount provided by law.
Starting from fiscal years from 31 July 2010, a change in value of compulsory technical reserves relating to life insurance business is included in the IRES taxable basis, for an amount ranging from 95% to 98.5%.
The change in value of the claim reserves relating to non-life insurance business, for the portion relating to its long-period component (75% of the reserve amount), is deductible in the relevant tax year up to 30% of its amount. The remainder is deductible in equal instalments in the following 18 years.
Dividends, capital gains or losses on shares that qualify for the participation exemption rule and unrealised capital gains and losses on shares and similar instruments are included in the IRES taxable basis, if they relate to investments benefiting policyholders of life insurance products where the risk is borne by the policyholders.
A 0.35% tax applies to the amount of mathematical reserves relating to life insurance business accounted in the financial statements, with certain exemptions (for example, death risk agreements, permanent invalidity or non self-sufficiency agreements, pension funds and social security insurance policies). The tax paid can be off-set against future payments relating to withholding or substitute taxes applied by insurance companies when paying capital income deriving from certain insurance policies.
Italian insurance companies are also subject to IRAP at 3.9% (this rate varies according to different regional legislation). The IRAP taxable basis is the sum of the results of the life business and the non-life business from the profit and loss account, less certain non-deductible items, such as expenses relating to personnel and depreciation of receivables. Interest expenses incurred in any tax year are deductible up to 96% of their amount.
IPT is levied on a proportional basis varying from 2.5% (for example, personal accident or health) to 21.25% (for fire and theft). The taxable basis is the premium, without deductions, and all additional amounts, including all sums paid to the insurer. Additional charges may apply to certain insurance policies. No IPT applies to life insurance policies and to financial products issued by insurance companies subscribed after 1 January 2001. Certain reinsurance agreements may also be exempt. Unless agreed otherwise, IPT can be charged to the insured party.
Before litigation is initiated, natural and legal persons, as well as consumer associations with a legitimate interest in consumer protection, can file complaints with ISVAP for non-compliance with Private Insurance Code rules by:
Insurance and reinsurance companies.
ISVAP opens a summary investigation and makes a decision within 120 days from the day it received the complaint.
Further, Law Decree No 28 of 4 March 2010 has introduced mandatory mediation for all disputes arising from insurance contracts. This mediation will take place before specialised bodies enrolled in a register, set up by the Decree of the Minister of Justice No 180 of 18 October 2010, and came into force on 20 March 2011.
There are no other special procedures or venues for insurance or reinsurance disputes. These disputes are brought in the competent legal court or before an arbitration panel if arbitration is contractually provided for (see Question 34).
Most reinsurance contracts contain terms requiring binding arbitration to settle disputes. This dispute resolution method is used to resolve issues concerning damage assessment or other technical aspects of reinsurance contracts. Typically, arbitration occurs in front of a panel of three active or retired insurance or reinsurance professionals who resolve disputes based on industry custom and practice.
Usually insurance contracts submit litigation arising from those contracts to the jurisdiction of Italian courts. Arbitration clauses referring disputes to a panel of (usually three) arbitrators are also common (especially within reinsurance contracts).
However, when policyholders are consumers (that is, natural persons acting outside of their commercial, industrial or professional activity), the default rule is that the applicable forum is the venue where the consumer has his own residence or domicile. Therefore, arbitration clauses are considered inequitable and void, except if the insurer proves that these clauses were specifically negotiated between the parties. This rule does not stand for reinsurance contracts, which are entered into between professional parties.
Many contracts written by large Italian insurers are submitted to Italian law and to Italian tribunals. However, choice of English or US law is also very popular, as well as the appointment of arbitrators who must resolve the relevant disputes applying English or US law. Specific rules apply where the policyholders are consumers (see Question 34).
The implementation of EU Directives and their amendments continue to impact on reform in the insurance sector. Minimum solvency requirements and the revised Insurance Core Principle will drive further legal and regulatory changes (see Question 1, Market trends).
Main activities. ANIA is the main insurance and reinsurance trade organisation. It represents its members and their interests to the Italian Parliament, the government and other political institutions, trade unions, consumer associations and so on.
Main activities. AIBA is the Italian association of insurance and reinsurance brokers.
Main activities. ACB is the Italian brokers' trade association.
Main activities. This is the national trade union for insurance agents.
Main activities. This is the Italian association for loss adjusters for fire and other risks.
Areas of practice. Banking; finance; capital markets.
His work covers the areas of banking, securitisation, derivatives, and IPOs, as well as corporate law, project financing and litigation for clients in the financial sector.
Areas of practice. Bank and institutional finance; corporate; corporate finance; insurance regulatory.
Areas of practice. Tax