The Italian Government approved a draft law decree aimed at ensuring financial stability and market integrity in the event of hard Brexit (the “Decree”). The final version of the Decree is expected to be issued soon and will enter into force upon the publication on the Official Journal. Amendments in the final version of the Decree cannot be excluded at this stage, but significant deviations from the below are not expected as the Decree was presented and approved on the same day.
1. Cancellation from the Italian IVASS Registers and business interruption
In relation to UK insurance undertakings and intermediaries, these are the main provisions of the draft version of the Decree examined by the Government yesterday:
UK insurance undertakings and intermediaries that are allowed to carry out business in Italy under freedom of services and right of establishment will be required to interrupt any activity in Italy upon hard Brexit save for, respectively, a 18-month run-off period (unless IVASS grants an extension upon specific and motivated request to be submitted in advance) and a 6-month run-off period. In these periods insurance undertakings and intermediaries respectively are only authorized to manage the existing business and insurance covers, without the power to underwrite/distribute new business.
2. Disclosure requirements to existing policyholders, insured and beneficiaries
Within 15 days from the entry into force of the Decree, UK insurance undertakings and intermediaries must inform policyholders, insured persons and beneficiaries about their operational regime in place and of any actions taken to ensure the orderly closure of the existing contractual relationships, even if they already communicated to IVASS the contingency plan they intended to adopt in compliance with the previous regulatory requirements and guidelines.
3. Communication to IVASS
Within 90 days from the entry into force of the Decree, UK insurance companies must file with IVASS an action plan for the effective management of the insurance policies in place during the transitory period, including the payment of claims.
4. Right of withdrawal from existing contracts
Starting from the date of the exit of the UK from the EU, Italian policyholders of insurance contracts issued by UK insurance undertakings are allowed to withdraw from their policies having a duration longer than 1 year without any penalty, by sending a written communication to the insurer. Tacit renewal clauses will no longer be effective as of that date.We remain at your disposal for any clarification you may need.
Following the incorporation into Italian national laws of the Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution IVASS (the Italian insurance regulator) has issued the new Regulation no. 41 of 2 August 2018 on disclosure, advertising and creation of insurance products matters (the “Regulation”), applicable from 1 January 2019.
The Regulation is aimed at reviewing and amending the regulatory provisions contained in IVASS Regulation no. 35/2010, and provide a standardised base pre-contractual document for each insurance product category that will replace the standard Informative Note (Nota Informativa) as follows:
In addition, IVASS introduces a supplementary standardized pre-contractual document to be delivered to potential customers together with the base documents, the so called Supplementary DIP (“DIP Aggiuntivo”) aimed at collecting information which is supplementary and complementary with respect to the information contained in the base documents, in order to ensure a more detailed knowledge of the product and to guide the client toward an informed decision on contractual rights and obligations.
Following the approval of the Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast) it is now time to assess the aim of such Directive, taking into account that EU countries shall incorporate it into national law by 23 February 2018.
In detail, it aims to improve the way insurance products are sold so that they will bring real benefits to consumers and retail investors in the EU.
Under the new directive on insurance distribution, consumers and retail investors buying insurance products or insurance-based investment products will benefit from greater transparency of insurance distributors with regard to the price and the costs of their products, so that it is clear to consumers what they are paying for.
In addition, consumers should benefit from a better and more comprehensible information, so that consumers can take more informed decisions, with a simple, standardised Insurance Product Information Document (IPID) for non-life insurance products.
Furthermore, where insurance products are offered in a package with another good or service, for example when a new car is sold at a bargain price together with motor insurance, consumers will have the choice to buy the main good or service without the insurance policy.
New rules on transparency and business conduct should prevent consumers from buying products that do not meet their needs. These rules now also apply when a product is bought directly from an insurance company, and not only (as in the past) when products are bought via intermediaries such as agents or brokers.
There are stronger safeguards for the sale of life insurance products with investment elements, such as unit-linked life insurance contracts. Insurance distributors selling such products have to make sure that the product is suitable with regard to the customer’s financial situation, investment objectives and experience in the investment field.
Insurance distributors will benefit from fair competition on a level playing field and an improved legal framework for cross-border business.
The directive recasts and replaces Directive 2002/92/EC on insurance mediation with effect from 23 February 2018.
The Directive applies from 22 February 2016.
The European Commission has published a roadmap concerning its forthcoming Green Paper on retail financial services and insurance. The roadmap notes that the Green Paper, when published, will seek stakeholders’ views on how to bring about better outcomes for consumers and firms in terms of better access, more transparent markets, increased competition as well as greater consumer choice and improved consumer protection (on a domestic and cross-border level) in an increasingly digital environment. In particular, the paper will seek to identify the barriers in the market and investigate the means, including the state of the art technological and innovative solutions, to further improve the functioning of the EU Single Market for providing, purchasing and using retail financial services and insurance.
See Commission roadmap on Green Paper on retail financial services and insurance, 2 September 2015.
The Unfair Terms in Consumer Contracts Directive (see Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts) provides that consumers are not bound by unfair clauses that are set out in a contract concluded with a seller or supplier. However, according to that directive, the assessment of the unfair nature of the terms concerns neither the definition of the main subject-matter of the contract nor the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, provided that those terms are drafted in plain, intelligible language.
In 1998, Jean-Claude Van Hove concluded two mortgage loan contracts with a bank. At the time of concluding those loan contracts, he signed a “group insurance contract” with CNP Assurances in order to guarantee, in particular, 75% cover of the loan repayments in the event of total incapacity for work. Following an accident at work, Mr Van Hove was found to have a permanent partial incapacity rate of 72% within the meaning of French social security law. The doctor appointed by the insurance company concluded that Mr Van Hove’s state of health, although no longer compatible with him returning to his former post, allowed him to carry on appropriate employment on a part-time basis. The company therefore refused to continue to cover the loan repayments in respect of Mr Van Hove’s incapacity.
Mr Van Hove brought legal proceedings seeking recognition that the terms of the contract are unfair as regards the definition of total incapacity for work and the conditions under which repayments are covered by the insurance. According to Mr Van Hove, the term relating to total incapacity for work causes a significant imbalance to the detriment of the consumer, especially as its definition is worded in such a way as to be unintelligible to a lay consumer. CNP Assurances considers that the term at issue cannot constitute an unfair term because it concerns the very subject-matter of the contract. Moreover, it contends that the definition of total incapacity for work is clear and precise, even if the criteria which are taken into account for the purposes of fixing the functional incapacity rate are different to those used by the social security authorities. In those circumstances, the French court seised of the dispute (the tribunal de grande instance de Nîmes) asks the Court of Justice if it is possible to assess whether the term in question is unfair
In Judgment in Case C-96/14 Jean-Claude Van Hove v CNP Assurances SA, the Court states, referring to the nineteenth recital in the preamble to the directive, that, in insurance contracts, terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to an assessment of unfair character, since those restrictions are taken into account in calculating the premium paid by the consumer. Thus, it cannot be ruled out that the term at issue concerns the very subject-matter of the contract, in so far as it seems to circumscribe the insured risk and the insurer’s liability while laying down the essential obligations of the insurance contract. The Court leaves it to the national court to determine this point, indicating that it falls to that court, having regard to the nature, general scheme and the terms of the contract taken as a whole, as well as its legal and factual context, to determine whether the term lays down an essential component of the contractual framework of which it forms part.
As regards the question whether the term at issue is drafted in plain, intelligible language, the Court points out that the requirement of transparency of contractual terms, laid down by the directive, cannot be reduced merely to their being formally and grammatically intelligible, but that that requirement is to be interpreted broadly. In the present case, the Court does not rule out that the scope of the term defining the concept of total incapacity for work was not understood by the consumer. Thus, it may be that, in the absence of a transparent explanation of the specific functioning of the insurance arrangements relating to the cover of loan payments in the context of the contract as a whole, Mr Van Hove was not in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it. It is again is for the national court to make a finding on that point.
According to the Court, the fact that the insurance contract forms part of a contractual framework with the loan contracts could be also relevant in that context. Thus, the consumer cannot be required to have the same vigilance regarding the extent of the risks covered by that insurance contract as he would if he had concluded the insurance contract and the loan contracts separately.
The Court therefore declares that terms that relate to the main subject-matter of an insurance contract may be regarded as being drafted in plain, intelligible language if they are not only grammatically intelligible to the consumer, but also set out transparently the specific functioning of the insurance arrangements, taking into account the contractual framework of which they form part, so that that consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it. If not, the national court may assess the possible unfairness of the term at issue.