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.
The Court of Milan, in its Judgement n. 4959/2015, published on 20 April 2015, R.G. n. 46086/2010, ruled that the misrepresentations of the assured on the security measures in place at inception of the policy, as represented under the proposal form, entail a gross negligence of the jeweller pursuant to art. 1892 of the Italian Civil Code (“codice civile”) and accordingly the insurer is not bound to pay the sum insured under the policy.
Article 1892 of the Italian Civil Code (“codice civile”) – named Misrepresentations or fraudulent or grossly negligent failure in disclose – provides that “If the contracting party, fraudulently or through gross negligence, misrepresents or fails to disclose circumstances which, if known to the insurer, would have caused him to withhold his consent to the contract, or to withhold his consent on the same conditions, the insurer can annul the contract. The insurer is entitled to the premiums covering the period of insurance running at the time when he petitioned for annulment of the contract, and in all cases to the premiums agreed upon for the first year. If the loss occurs before the expiration of the period indicated in the preceding paragraph, the insurer is not bound to pay the sum insured.“
The Court further ruled that the fact that the security measures were not in place also at the time of the loss entails autonomously a loss caused by gross negligence of the assured pursuant to art. 1900 of the Italian Civil Code (“codice civile”) – named Loss caused by fraud or gross negligence of the Insured – which provides that “The insurer is not liable for losses caused by the fraud or gross negligence of the contracting party, of the insured, or of the beneficiary, unless there is an agreement to the contrary for cases of gross negligence.“
Following the public consultation launched on 18 March 2014, IVASS published the Regulation No. 8 of 3 March 2015 concerning measures to simplify the administration of contractual relationships between insurance undertakings, intermediaries and clients. The Regulation implements Article 22, paragraph 15-bis of Law Decree No. 179 of 18 October 2012, as converted into law which required IVASS to enact measures aimed at reducing the paper format requirements and promoting the use of digital documentation. Below are the main relevant provisions set out by the new Regulation.
Italian and EU insurance undertakings and intermediaries are required to foster the use of advanced electronic signature, qualified electronic signature and digital signature for the execution of the insurance agreements.
Furthermore, with an aim at promoting the use of traceable means of payment, insurance undertakings and intermediaries must allow clients to pay insurance premiums by means of electronic payment instruments.
In addition, before the execution of the agreement or the signing of the proposal, insurance undertakings and intermediaries may obtain the client’s consent – also through voice recordings or email – to the electronic transmission of the relevant documentation during both the pre-contractual and contractual phase of the relationship with the client.
Insurance undertakings and intermediaries must adopt a documentation management system aimed at avoiding requests to clients of documentation which is not necessary or which has been already obtained in relation to previous relationships with the same client.
Italian insurance undertakings and intermediaries must obtain a certified e-mail account (“Posta Elettronica Certificata” or “PEC”) and indicate the PEC address in any communication addressed to the public and on their website. However, it is worth noting that this obligation already apply, upon registering with the Companies’ Register, to companies (Law Decree 185/08, converted into Law no. 2 of 28 January 2009) and sole traders (art. 5 of Law Decree no. 179 of 18 October 2012).
Insurance undertakings and intermediaries will have 6 months from the entry into force of the Regulation (which shall occur 30 days from publication in the Italian Official Gazette) to comply with the new provisions regarding the PEC address and the establishment of the above-mentioned documentation management systems.
The Regulations apply to the promotion, distribution and management by companies and intermediaries of life and non-life insurance contracts. Instead the distribution of insurance products pursuant to the IVASS Regulation No. 34 of 19 March 2010 would remain excluded from the scope of the Regulation.