#DERISK NOVEMBER 2020 - OUR INSURANCE TEAM IN ITALY INTRODUCES #DERISK, THE PRODUCT OF YEARS OF FIELD EXPERIENCE - DLA PIPER
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NOVEMBER 2020
#DeRisk
Our insurance team in Italy introduces #DeRisk, the product of years of field experience
combined with our insight into the latest trends in risk management
#DERISK Contents BRUNO GIUFFRÈ, DAVID MARINO, ANGELO BORSELLI – Ever more insurance in M&A transactions����������������������������������04 ANDREA PANTALEO – Crypto-assets: New opportunities for the insurance market����������������������������������������������������������������������06 DAVID MARINO – Insurance Distribution Directive and product oversight and governance – new IVASS measures enacted���������������������������������������������������������������������������������������������������������������������������������������������������������������08 SARA SPARAGNA – The process of insurance digitalization: Electronic subscription of the policy�������������������������������������������11 DAVID MARINO, KARIN TAYEL – Fair and balanced insurance contracts – recent Supreme Court rulings����������������������������13 ANTONIO LONGO – Foreign insurance policies designed for HNWIs moving to Italy: Insurance companies seeking tax clarifications��������������������������������������������������������������������������������������������������������������������������������14 Legal and regulatory updates – contributed by CHIARA CIMARELLI����������������������������������������������������������������������������������������15 Case law updates – contributed by ANGELO BORSELLI, VALENTINA GRANDE����������������������������������������������������������������������21 DLA Piper’s event: Addressing the sustainability imperative in insurance, November 12, 2020.........................................22 Authors.....................................................................................................................................................................................................23
DLAPIPER.COM
#DERISK
Ever more insurance in
M&A transactions
Bruno Giuffrè, David Marino, Angelo Borselli
With the global M&A market facing the uncertainties than in Italy – are the so-called W&I synthetic policies,
caused by the COVID-19 outbreak, insurance in in which the insurance cover does not need to be
M&A transactions is likely to play an increasingly based on the representations and warranties made
important role. by the seller, which may not be included at all in the
acquisition agreement, and this might prove particularly
Transactional insurance includes a wide variety useful especially in the case of distressed M&A. In W&I
of insurance products, with a growing degree of synthetic policies, in fact, the buyer agrees a set of
sophistication, which share one common element: the representations and warranties directly with the insurer.
transfer of transactional risks from the buyer/seller to
the insurer. The use of transactional insurance has been steadily
growing for almost a decade, also in Italy, where, after
In particular, in addition to the now quite well-known some initial uncertainties, there has been an upward
Warranty and Indemnity (W&I) policies, which cover the trend towards using this type of coverage.
risks arising from breaches of the representations and
warranties included in the acquisition agreement, there Despite the current context, further growth for W&I
are also contingent liability policies, which cover known and more generally transactional insurance can be
risks (not yet occurred though and of uncertain size), expected. As the COVID-19 crisis has mainly resulted
from tax risks to those related to ongoing disputes, in a lack of liquidity for some companies, transactional
and more generally risks specific to the individual insurance might turn out to be particularly useful to
transactions, such as environmental or real estate risks. avoid or limit escrow requirements, thereby preserving
companies’ liquidity needs. In general, at a time when
In almost all cases, these are buyer-side policies in which uncertainty prevails, transactional insurance can also
the policyholder is the buyer, but sometimes seller-side be useful to manage the risk that sellers in difficult
policies are also used. financial conditions may not be able to meet indemnity
obligations assumed in the acquisition agreement.
The advantages of these insurance products are
many. Considering those more manifest, the seller The impact of COVID-19 on the target (consider the
(for example, a private equity fund) can liquidate its difficulties of the supply chain, remote working issues,
investment, minimizing the risk of post-closing liability, and all cases of business interruption) is subject to
while the buyer, in the event of a breach of the seller's specific due diligence by insurers, which does not
representations and guarantees, does not have to take necessarily lead to a general exclusion of COVID-19-
action against the seller, which is not always a viable and related risks, but rather to a definition of the scope
effective option (think of a distressed sale). of coverage calibrated with the tailor-made approach
typical of insurance in this area.
From a strategic point of view, insurance allows the
buyer to make its acquisition offer more competitive The pandemic crisis might then turn out to be a driver
vis-à-vis others bidders, as it reduces, if not completely behind a steady increase in the use of transactional
eliminates, the need to insist on the seller's indemnity insurance, so much so that further product innovation
obligations during the negotiation phase. Of particular can be expected. In Italy, these policies are not subject
interest – and for the moment more known abroad to specific regulations, and in the past there were also
4DLAPIPER.COM
uncertainties about whether they complied with the Although some interpretative doubts remain,
requirements of ISVAP Regulation No. 29/2009 on 1
the regulator's desire to remove uncertainties about
the classification of risks within classes. In July 2019, the use of transactional risk insurance in Italy, at least
however, the Italian Insurance Supervisory Authority, as regards W&I policies, is clear, as these policies are
IVASS, through an FAQ, expressly acknowledged that now recognized as an effective risk-management tool
W&I policies may, under certain conditions, be used for M&A transactions. The challenges posed by the
in Italy.2 COVID-19 crisis can represent a testing ground for
transactional insurance.
1
Article 4 of the Regulation No. 29/2009, which is not unambiguously worded, prohibits "coverages intended to guarantee the repayment of contingent
liabilities or capital losses on assets arising from valuations resulting from extraordinary business operations".
2
See Bruno Giuffrè, Angelo Borselli, Italy: IVASS clears the way for warranty and indemnity insurance, available at: https://www.dlapiper.com/en/italy/insights/
publications/2019/08/warranty-and-indemnity-insurance/.
5#DERISK
Crypto-assets: New opportunities for
the insurance market
Andrea Pantaleo
After a quite long wait, on September 24, 2020, All service providers related to crypto-assets will
the European Commission published the so-called therefore be obliged to take out an insurance policy
Digital Finance Package, which includes the proposal with a company authorized to provide insurance
for a European Regulation on crypto-assets. services in accordance with European and national
regulations. The policy must have an initial duration
This proposal provides for a specific regulation of at least one year and a cancellation notice of at least
for crypto-assets other than financial instruments 90 days. Coverage must include:
which do not already fall under the existing financial
regulation (MiFID II above all) and which, as a result, • loss of documents;
are now completely lacking in harmonized regulation
• incorrect or misleading reporting;
at European level.
• errors or omissions consisting of breaches of legal
The proposal covers three types of crypto activity, and regulatory obligations, duties to act honestly and
namely utility-tokens, whose main function is to professionally towards clients, duties of confidentiality;
access an application, service or digital resource,
• breach of the obligation to adopt and
asset-referenced tokens (also called stablecoins,
maintain adequate conflict of interest
like Facebook's Lybra to give an example known to
management procedures;
many) and e-money tokens.
• losses resulting from business interruption or system
The European Commission devotes much of the malfunctions; and
new regulation to stablecoins and e-money tokens.
• gross negligence in safeguarding clients' funds and
The former are crypto-assets that tend to stabilize their
crypto-assets.
value by reference to currencies, commodities, other
crypto-assets or a basket of them, while the latter refer
The proposed Regulation on crypto-assets therefore
to the value of a legal tender fiat currency. The fact
represents not only a great opportunity for issuers and
that the value of stablecoins and e-money tokens is
service providers operating or intending to operate in
somehow linked to reference values makes it more likely
this market, but also a new frontier for the insurance
that, in the future, this type of crypto-asset will widely
market. The timing of approval and applicability of the
circulate, and for this reason it reserves to this category
Regulation is not imminent, but given the complexity of
a more stringent regulation with specific authorization,
the crypto activities, it is crucial for insurance companies
capitalization and governance regimes.
and brokers to prepare for what may appear to be
a simple niche market today, but which in the future
To create the safest possible market, the Commission
could take on the contours of a new digital revolution in
has also introduced insurance obligations for service
means of payment and investment, and insurance will
providers in the area of capitalization requirements.
play a primary role in guaranteeing and safeguarding
Providers are defined as those operators providing
the market.
exchange, trading platform, order execution, order
receipt and transmission, advisory and custody services.
The main novelty is undoubtedly the specific
In other words, all those services that follow the first
authorization regimes, capitalization and governance
crypto issuance phase and related to the circulation and
requirements for issuers (who will also have to
exchange of crypto-assets on secondary markets and to
guarantee a technical reservation to cover their
their custody (e-wallets).
commitments) and for service providers, particularly
6DLAPIPER.COM
accentuated if they relate to stablecoins or e-money This choice to adopt for crypto-assets a familiar
tokens, for the reasons of their possible systemic regulatory regime, although in a lighter form, is certainly
relevance, as mentioned above. These requirements to be welcomed. This regulatory choice should allow
will be even more accentuated for significant issues, operators already authorized to provide investment
i.e. issues above a certain value, diffusion or and payment services, and who wish to expand their
cross-border thresholds, which will see the European business to include crypto-assets, to move in a familiar
Banking Authority as supervisory body. regulatory environment, and at the same time allow new
issuers and providers to access the crypto-assets
For the rest, the proposal follows the essential elements market on the basis of a clear but not so rigid and
of the existing financial regulation (MiFID II, Prospectus burdensome set of rules that prevent or limit the spread
Directive, Market Abuse Regulation), which will be of these instruments.
transferred to crypto-assets in a simplified form.
Similarly, the choice to regulate security-tokens in the
This is the case, for example, with the whitepaper form of soft-law, which are therefore not affected by this
regulation – already in use in current practice and proposal, seems wise, since this approach should make
institutionalized with the proposal – which represents it possible to capture and regulate more quickly – in a
a sort of simplified prospectus, i.e. the regulation of rapidly evolving market – those crypto-assets that take
trading and advisory services, which incorporate many on the characteristics of financial instruments.
of the basic rules of MiFID II (on all best execution and
assessment of the compatibility of crypto-assets with the
investor's risk profile), so much so that this regulation
can be considered a sort of miniature MiFID II, at least
pending the detailed regulation that will follow.#DERISK
Insurance Distribution Directive and
product oversight and governance –
new IVASS measures enacted
David Marino
With two measures introduced in August 2020, IVASS COMPLAINTS
(the Italian insurance regulator) has approved changes The obligation (which, at present, applies only to
and certain rules – effective as of March 31, 2021 – domestic and third-country insurers) to publish on their
to various IVASS regulations concerning distribution website a report on complaint-handling activities has
and product oversight and governance (POG) for been extended to EU undertakings that pursue business
insurers and distributors. This article highlights the in Italy under the freedom of establishment or freedom
main changes. to provide services regime. The obligation applies if the
number of complaints exceeds 20 per year.
Insurance Distribution Directive
Through Measure No. 97 of August 4, 2020, IVASS In addition, intermediaries registered under Section
approved changes – effective as of March 31, 2021 – to: D of the Register of Insurance Intermediaries (RUI)
(i.e. banks) must notify the complaints received to
• IVASS Regulation 23 of May 9, 2008, on the insurers for which they work in order to allow
the transparency of premiums and conditions a more accurate and effective monitoring of such
of compulsory insurance for motor vehicles distribution channel.
and watercraft;
GOVERNANCE
• IVASS Regulation 24 of May 18, 2008, on complaint
Domestic insurers' compliance divisions have been
handling by insurers and intermediaries;
entrusted with the specific role of checking compliance
• IVASS Regulation 38 of July 3, 2018, on corporate with the rules in the matter of POG (i.e. POG of
governance of domestic insurers; insurance products).
• IVASS Regulation 40 of August 2, 2018, on insurance
DISTRIBUTION
and reinsurance distribution; and
The changes that have been introduced with regard to
• IVASS Regulation 41 of August 2, 2018, on distribution aim to:
transparency, advertising and pre-contract
information duties. • rationalize and simplify market players' obligations;
• strengthen consumer protection; and
COMPULSORY MOTOR INSURANCE
Insurers that have their registered office in another • set out new rules of conduct for the distribution of
EEA Member State and pursue business in Italy under insurance-based investment products (IBIPs).
the freedom of establishment or freedom to provide
services regime must: Horizontal partnerships
Collaboration contracts between intermediaries
• indicate in the quote given to consumers whether registered in Sections A, B, D of the RUI must be
they are a member of the direct compensation system properly drafted (reviewed) to ensure that:
(the so-called CARD system); and
• adequate information is provided to insureds
• clarify that in the event that they are not a member
regarding costs and charges relating to the
of the system, the insured will be unable to seek
distribution activity; and
indemnification from its insurer but will have to seek
indemnification from the injured party's insurer. • POG rules are duly complied with.
8DLAPIPER.COM
In the latter respect, intermediaries must notify the the cessation of the relationship. Distributors must
insurers for which they work regarding collaboration also keep documents relating to the product and the
agreements with other intermediaries. product approval process received by insurers and
manufacturers de facto.
Pre-contractual information
Taking into account the need for simplification and Training and professional updating
rationalization expressed by the market, as well as the The reform of training and professional provisions
approach to pre-contractual information adopted by aims to:
bank distribution – where most of the pre-contractual
information is provided at the beginning of the • encourage a rise in the professional standards of
relationship when signing the framework consulting insurance intermediaries; and
contract – Article 56 of IVASS Regulation 40/2018 has
• promote the harmonization of the regulation of
been amended to distinguish between:
professional requirements in the insurance and
financial sectors, while at the same time initiating a
• information of a static nature, which does not change
process of rationalization and simplification of the
due to the conclusion of several insurance contracts
training costs.
with the same policyholder; and
• information of a dynamic nature, which varies for each Telephone recordings (Article 83)
individual contract. In case of distance selling, distributors must
provide information in relation to the recording of
As a result, the amount of information to be rendered conversations or telephone communications leading
for each contract has been significantly reduced. With to the conclusion of insurance contracts. In the case of
regard to disclosure regarding remuneration, in the IBIPs, communications are also recorded which do not
case of horizontal collaborations or with intermediaries give rise to conclusion of the contract in accordance
registered in Section E of the RUI, the information is with CONSOB (the Italian Companies and Exchange
on the whole relative to the compensation received Commission) regulations.
by the intermediaries involved in the distribution
of the insurance product. Rules of conduct for distribution of insurance
investment products
Assessment of policyholders' requests and needs New provisions regarding pre-contractual information,
To strengthen client protection, an appropriate incentives and assessment of adequacy and
statement must be delivered to the insured in which the appropriateness have been introduced.
distributor certifies that the insurance product meets
the insured's insurance needs. TRANSPARENCY AND INFORMATION DUTIES
The provisions regarding annual statements of
Combined sales accounts, which apply at present to unit-linked
Article 59-bis has been inserted, which identifies contracts, have been extended to all IBIPs. Specific
the additional information that must be provided information regarding the cumulative effect of costs on
in the sale of insurance products combined with an the profitability of the product will be included.
ancillary product or service other than insurance.
The information concerns the appropriate description Product oversight and governance
of the different components of the agreement or of the Through IVASS Regulation No. 45 of August 4, 2020,
package and separate evidence of the costs and charges IVASS approved certain rules – effective as of March 31,
of each component, as well as how its composition 2021 – aimed at completing the regulatory framework
changes risks or insurance cover. on POG for insurers and distributors. In line with the
primary legal framework, IVASS's new measure:
Document storage
Distributors must keep documents relating to their • regulates the approval process of insurance products,
distribution activity for the entire duration of the identifying precise obligations on the producers which
insurance relationship or until the longer term provided will identify with a sufficient degree of detail the target
for by law and, in all events, for at least five years after market of an insurance product and the categories of
9#DERISK
subjects to which the product may not be distributed, • identifies the rules and elements to be taken into
taking appropriate measures to ensure that the account regarding the identification of the target
product is distributed to the identified reference market and the negative target market;
market; and
• defines the information flows between insurers
• provides for specific provisions regarding the approval and distributors;
and distribution processes of the product concerning
• regulates the distribution mechanisms of insurance
insurance investment products.
products; and
The measure will apply (at least in part) to foreign • prescribes specific control obligations on the part
insurers and distributors. of the unit or structure responsible for insurance
distribution for distributors of insurance products
In particular, the measure: registered in Sections A, B and F of the RUI and
• identifies the roles and responsibilities of the regulates free collaboration relations between
corporate bodies involved in the approval and intermediaries involved in the distribution of
distribution process of insurance products; insurance products to ensure full compliance with
the obligations set out by the measure.
Further details on both IVASS Regulation No. 45/2020 and IVASS measure No. 97 of August 4, 2020, are available
below in Legal and Regulatory updates.DLAPIPER.COM
The process of insurance
digitalization: Electronic subscription
of the policy
Sara Sparagna
The COVID-19 health emergency has considerably • qualified electronic signatures (FEQ) which is a
accelerated the digitalization process and the use of IT subscription method that is based on an electronic
and telematic tools in the insurance field. Last April, certificate issued at the end of an identification
the Agenzia per l'Italia Digitale (AgID) issued the process of the applicant (by means of a tax code,
Guidelines for the electronic underwriting of documents register entry or other data) which allows the
through SPID (the Public System of Digital Identity), electronic signature to be linked to a person; and
published in the Official Gazette No. 90 of April 4, 2020,
• as it was recently introduced, the signature through
with the aim of promoting the process of complete
SPID (the public system for the management of the
digitalization of documents and expanding the range of
digital identity of citizens and companies) which gives
electronic underwriting methods.
the possibility, having obtained a digital identity (and
this can be done free of charge), to sign policies
Insurance contracts must be proved in writing (Article
online. The system provides for the generation by
1888 of the Civil Code). Although even the Private
the entity managing the digital identity of an OTP
Insurance Code makes express reference to the drafting
(One Time Password) code (so-called second-level
of the insurance contract on paper, we can expect that
SPID) in order to put one’s signature in completely
in the coming months the paper policies will give way to
dematerialized mode with the same value as a
intangible policies.
handwritten signature.
The underwriting of the policies by advanced or
Of course, in cases where the electronic signature does
qualified electronic signature can be done through
not contain any graphic sign on the policy as a computer
various means:
document (e.g. with the electronic signature in .cades
format which transforms the format of the policy file into
• digital signatures (in .pades or .cades format) with
a .p7m file) it will be necessary to adapt the text of the
which all registered professionals are equipped today
Policy to this underwriting method, to demonstrate the
and which, by means of a system of cryptographic
full knowledge and acceptance by the insured party of:
keys (one private and one public) makes it possible
to verify the origin, integrity and authenticity of
• the completeness and truthfulness of the
the signature;
statements made;
• advanced electronic signatures (FEA) which
• the receipt of the information package; or
is a graphometric signature that records the
characteristics of the handwritten signature directly • the specific approval of the abusive clauses.
on the mobile phone or touch screen of any device of
the insured and is capable of uniquely identifying the Furthermore, the management and storage of digital
signatory with a high level of security. This mechanism policies will make it necessary for both companies and
makes it possible to affix an "electronic signature" on intermediaries to organize data and dematerialized
several points of the policy as a computer document; policies in an efficient and secure manner, not only
in terms of privacy but also to comply with other
applicable regulations.
11#DERISK Article 67 of IVASS Regulation No. 40 of 2018, This means that each company and intermediary must in addition to providing for the obligation for insurance also identify (and establish relevant internal procedures intermediaries to keep for at least five years, unless for) new methods of filing and storage of digital policies otherwise required by law, the contracts concluded so that a time-stamp can be provided and policies can through their intermediation, provides that such maintain legal value even after years. documentation may also be archived and preserved "by means of magnetic storage, microfilming, optical or digital media, or in another equivalent technical form," but with the need to adopt "procedures and methods of filing and storage suitable to ensure the orderly maintenance and management of policies."
DLAPIPER.COM
Fair and balanced insurance contracts –
Recent Supreme Court rulings
David Marino, Karin Tayel
In Orders 11092 of June 10, 2020, and 14595 of “the individual clauses must be considered in correlation
July 9, 2020, the Supreme Court (Third Division) with each other... since the literal meaning of the words
reiterated certain principles that should be used as must be understood as the entire literal formulation of
guidance for interpreting insurance clauses with a the negotiating declaration... the judge must link and
view to ensuring a fair balance between the insured's compare phrases and words in order to clarify their
rights and the insurer's obligations. meaning” (Order 11092/2020);
In line with the rules on the interpretation of • check that the meaning of a clause is consistent with
contracts set out in the Civil Code, the Supreme Court the interests that the parties specifically intended to
reiterated that: protect; and
• apply the principles of good faith and fairness
• in case of doubt, coverage exclusions that significantly
and ensure that the clause does not generate
restrict the scope of the insured risk must be
false expectations.
interpreted in favor of the insured; and
• the amount of the premium and the scope of the In such a context and in light of the product oversight
coverage granted must be consistent. To this end, governance rules and IVASS's letter to the market of
judges should assess on a case-by-case basis whether March 18, 2018, regarding clear and simple contracts,
an insurance contract meets the insured's needs and the following will be useful in reconstructing the parties'
offers effective coverage in the event of a claim. intention and the scope of the insuring grant:
In particular, when interpreting insurance clauses, • the analysis of the proposal questionnaires completed
the courts must: by the insured;
• the pre-contract information provided before the
• consider the literal meaning of the words and
policy inception; and
expressions used;
• the way in which the policy is structured and written.
• review the contract as a whole:
The Supreme Court orders once again confirm the
importance of insurance contracts being drafted with
rigor and according to clear and simple criteria in order
to limit misinterpretation and possible litigation.
13#DERISK
Foreign insurance policies designed
for HNWIs moving to Italy: Insurance
companies seeking tax clarifications
Antonio Longo
The Italian “res non dom” tax regime designed for proceeds should not be disapplied upon the mere
high-net-worth individuals (HNWIs) moving to payment of the EUR100,000 substitutive tax, regardless
Italy provides for an option to pay an EUR100,000 of the fact the new resident has provided the insurance
substitutive tax on all foreign income (i.e. non-Italian) company with a self-declaration confirming their
sourced. The regime applies to individuals tax resident intention to benefit from the favorable tax regime on
abroad in 9 out of 10 years before the relocation to Italy foreign income.
and is applicable for 15 years.
Moreover, the Italian Tax Authorities have confirmed
In general, foreign companies operating in Italy the possibility to exclude the policy subscribed by a new
under the freedom of services regime (FoS) apply resident from the IRM – tax on mathematical reserves –
a withholding tax (26%) on proceeds originated from calculation (i.e. 0.45% of the mathematical reserves
unit-linked insurance policies. related to policies stipulated by Italian residents) during
the validity period of the “res non dom” regime. As a
What about the relationship between the special matter of fact, the IRM is generally deducted from the
“res non dom” tax regime and the taxation applicable taxes paid on the insurance proceeds which, in turn,
on insurance proceeds? Insurance companies were are covered by the EUR100,000 substitutive tax.
seeking clarifications in this respect considering that
a relevant segment of their private insurance offer is On the contrary, Italian stamp duty (imposta di bollo)
designed for HNWIs. will still apply since policies issued by insurance
companies under FoS are considered to be held
The Italian Tax Authorities (Ruling No. 178/2020) have in Italy under certain conditions, according to the
recently clarified the insurance company may disapply Italian Tax Authorities.
the withholding tax if the new resident policyholder has
exercised the EUR100,000 tax option in the individual The above is a clear example of how insurance taxation
income tax return. The exercise of such option in the is often related to the tax position of insurance
income tax return is therefore considered an essential companies’ clients. When the clients are HNWIs, the tax
requirement for the access to the "res non dom” regime. angle requires a detailed tailor-made analysis.
On the contrary, the withholding tax on the insurance
14DLAPIPER.COM
Legal and regulatory updates
contributed by Chiara Cimarelli
As discussed in the article above by David Marino,1 on 1.2 Regulation 45 does not apply to EU insurance
4 August 2020, IVASS issued (i) Regulation No. 45/2020 companies operating in Italy under FOS or ROE and to
(Regulation 45) in the matter of Product Oversight distributors offering insurance policies covering large
Governance (POG) and (ii) Measure No. 97 amending, risks, whereas, in the case of insurance companies or
among others, Regulations No. 24/2008 on branches of extra EU insurance companies part of a
complaint handling and Regulations 40 and 41/2018, group, the provisions regarding the Compliance function
respectively on distribution of products and disclosure (see paragraph 1.4 below) shall apply proportionally to
requirements, advertisement and manufacturing of the last controlling Italian company.
insurance products.
CHAPTER II
Relevant provisions of both Regulation No. 45/2020 and 1.3 Chapter II is made of seven articles. Article 4
Measure No. 97 are considered below. reaffirms the principle pursuant to which manufacturers
must have and implement a POG for each new
Regulation No. 45/2020 on POG insurance product and for each material change of the
1.1 Save for the definitions contained in Chapter product, before the product commercialization, in line
I, Regulation 45 consists of two further chapters with Article 30 – decies of the Code of Private Insurance
(Chapter II and Chapter III, respectively), whose and Articles 3-9 of EU Regulation 2017/2358.
compliance must be assured by the following subjects:
Roles of board of directors, compliance and
• Chapters II and III: insurance companies manufacturers de facto
with legal seat in Italy, branches of extra 1.4 The board of directors is identified as the corporate
EU insurance companies; body entrusted with the responsibility of complying
with Regulation 45. In its role, the board of directors
• Chapter II: manufacturers de facto;
shall approve and review, at least annually, the POG,
• Article 10 and Chapter III: insurance intermediaries which must contain the specific elements indicated
registered under sections a), b), c), d), e) and f) of under Annex 1 to the Regulation, while the compliance
the Register of Insurance Intermediaries (RUI), function shall monitor the development and the
EU insurance intermediaries, including their periodical review of the POG in order to avoid the risk
collaborators distributing insurance products related to non-compliance with the current legislation,
within the premises of the distributor, insurance including directly applicable European legislation,
companies when distributing directly and their and shall draft the report provided for by Article 30 of
employees offering insurance products other IVASS Regulation Bo. 38/2018 by making reference
than insurance-based investment products; and to the assessments and the analyses carried out,
including those regarding the distribution strategy, the
• Article 10 and Chapter III: insurance intermediaries
direct distribution activity carried out by the insurance
registered under sections a), b) and c) of the
company and the relevant critical aspects encountered.
RUI, EU insurance intermediaries, including their
collaborators distributing insurance products
1.5 With respect to de facto manufacturers, the relevant
within the premises of the distributor, insurance
board of the directors shall approve the products and
intermediaries registered under section e) of the RUI,
apply the POG defined by the insurance company,
as well as insurance companies when distributing
shall monitor and review the POG and shall provide the
directly and their employees offering insurance
insurance company with the information necessary to
based investment products.
the Compliance function to draft the report indicated
under 1.4 above.
1
See David Marino, Insurance Distribution Directive and product oversight and governance – new IVASS measures enacted, in this issue of #DeRisk.
15#DERISK
Target market 1.9 Manufacturers must periodically verify compliance
1.6 The target market must be identified by taking into by the distributors with the above, while in case of so-
account at least the following aspects: called horizontal collaboration between intermediaries,
assessments must be carried out by the manufacturers.
• type of clients to which the product is sold; Steps must be taken to assure, over time, consistency
between the actual target market and the target market,
• risks to which the clients indicated under a) above
as well as between the actual negative target market
may be exposed;
and the negative target market.
• the insurance and target needs of the client;
Approval, test, monitoring and review of the product
• the features of the product, in particular with respect
1.10 An approval product process must be adopted
to the covers offered, the exclusions and the limits to
to assess that the manufacturing of the product is
such covers;
compliant with the obligations in matter of conflict
• the level of knowledge of the client, in relation to the of interests, remuneration and inducements. Before
complexity of the product; offering the product, the manufacturers must assess the
adequacy of the product to the distribution channels,
• the age, the job and the family of the policyholder.
as compared to the complexity of the product, and must
identify the instructions to be given to the distributors.
1.7 As far as IBIPs are concerned, manufacturers shall
verify the consistency of the product to the client’s
1.11 Test must take into account the costs applied to
profile by taking into account the following:
the product, in particular whether these are compatible
with the needs, targets and features of the clients falling
• the consistency between the risk/performance profile
within the target market, and whether the costs applied
of the product and that of the policyholder;
are sufficiently transparent for the target market. In
• the consistency of the product to the client’s interests, addition to the above, for IBIPs the following must
in particular with respect to conflict of interests also be evaluated: (i) that the costs do not jeopardize
determined by a business model which may be the financial performances of the product; (ii) whether
profitable for the manufacturer and not for the client; the product itself may undermine the stability of the
financial markets and of the insurance market.
• the financial situation of the client, including their
ability to sustain losses.
1.12 Monitoring and review must be carried out over
time on a continuous basis and must include an
Negative target market
assessment of the correctness of the evaluations traced,
1.8 Based on the above, manufacturers must identify
of the distribution channels used and of the number
the negative target market, by considering, among
of the complaints received. For IBIPs, manufacturers
other things, the exclusions and limitations of the
must also identify those aspects that may affect the
insurance cover. In particular, products shall not be
product performance.
distributed to clients falling within the negative target
market, whereas distribution to clients not falling within
Remedial measures may include, among other things,
the target market is allowed, on condition however that
the provision of supplemental information to the clients
such clients do not fall into the negative target market
on the critical aspects identified, review of the product
and the product meets the client’s insurance needs. As
approval process, suspension or interruption of the sale
far as non-complex IBIPs are concerned, the distribution
process, changes to the insurance product, contacts
to clients not falling within the target market is allowed,
with the intermediary to modify the distribution process,
provided that they do not fall within the negative target
termination of the distribution as a last resort measure.
market and that the product is adequate or appropriate
to the client’s needs, among others.
16DLAPIPER.COM
CHAPTER III Actual target market and negative actual target
Distribution mechanisms market (mercato di riferimento effettivo e mercato di
1.13 Distributors must know the products distributed riferimento effettivo negativo)
and must be able to evaluate the compatibility of the Article 12, paragraph 4, of Regulation 45 defines the
products to the clients’ needs. In order to offer the actual target market as a specification of the target
products, distributors must acquire all the information market, based on the consistency to the needs,
possible from the client to assess that the client falls the features and the goals of the target market.
within the target market. Likewise, the actual negative target market is defined
as an extension of the negative target market,
Distributors shall not distribute insurance products based on the further categories of clients to whom
to clients falling within the negative target market the product cannot be sold, which must be identified
identified by the manufacturer, rather they shall by the intermediary.
distribute products to clients not falling within the target
market provided that such clients do not fall within the Both the actual target market and the negative actual
negative target market and the product is suitable to target market must be communicated by the distributor
the client’s needs. Moreover, distributors shall distribute to the insurance undertaking, before starting the
non-complex IBIPs to clients not falling within the target distribution process.
market, provided that such clients do not fall within the
negative target market. Cooperation among intermediaries
In particular, where intermediaries registered in section
Distributors operating for EU insurance companies e) of the RUI are used, intermediaries registered under
offering products in Italy under the ROE or FOS regime sections a), b) d) and f) of the RUI must provide the
must adopt all measures necessary to comply with former with the information related to the target market
the above. and the distribution strategy and must verify that the
distribution activity carried out is consistent with the
Article 10: information flow target market and the distribution strategy.
Insurance companies and distributors must identify
in an agreement the contents, the periodicity and Regulation 45 will enter into force on
exchange of the information necessary to comply with March 31, 2021.
their respective obligations.
17#DERISK
IVASS Measure No. 97/2020 • “inducement” – any fee, commission or non-monetary
(Order 97) benefit provided by or to an intermediary or insurance
Amendments to IVASS Regulation No. 24/2008 in the company in relation to the distribution of an IBIP, to or
matter of complaint handling by any subject other than the client interested in the
transaction in question or by a subject that acts on
2.1 IVASS Regulation No. 24/2008 is amended, among behalf of the client; and
other things, to:
• “inducement scheme” – any set of rules that discipline
the payment of inducements, including the conditions
• clarify that IVASS is not the authority responsible
under which such inducements are paid.
for complaints regarding the modalities by which
information in the Key Information Documents (KIDs)
3.2 As far as the horizontal cooperation among
is provided;
intermediaries is concerned, the relevant provisions
• extend to branches of EU insurance companies and of Regulation 40 are modified to specify, among other
to insurance companies operating in Italy on a FOS things, that an agreement in writing must be reached
regime, which receive more than 20 complaints per among the intermediaries and that the intermediaries
year, the obligation to publish annually, in 60 days part of the agreement must procure that:
from the calendar year end, on their website, a report
on the complaint handling activities carried out, • the information regarding the remuneration
briefly containing the data and the types of complaint perceived by the intermediaries is communicated to
received by the insurance company together with the the policyholder before the conclusion of the policy;
relevant outcome;
• the information on costs and expenses related to the
• for domestic insurance companies, specify that the distribution activity must be communicated to the
report provided for by Article 9, paragraph 3, of IVASS insurance company, as per Articles 18 and 25 of IVASS
Regulation No. 24/2008 must also contain a section Regulation No. 41/2018;
indicating, in aggregate, the number, the subject
• the compliance in matter of product
matter and the outcomes of the complaints received by
oversight governance;
the intermediaries registered in section d) of the RUI;
• the integration of Annexes 4 and 4 bis to Regulation
• modify Article 10 sexies (Complaint handling by
40 with a correct and complete information to client
intermediaries registered in section d) of the RUI) to
on the horizontal collaboration among intermediaries.
provide that intermediaries registered in section
d) of the RUI transmit to the insurance companies
3.3 The report to be drafted by the Compliance
the information on the number, content and
function on the distribution network (Article 46 of the
outcome of complaints received and information
Regulation 40) is integrated in order to include also a
on the complaints received regarding the insurance
description of the elements related to the assessments
company’s behavior.
and the analyses conducted as per Article 30 decies
of the Code of Private Insurances.
Amendments to IVASS Regulation No. 40/2018 in
matter of distribution
3.4 Article 56 on pre-contractual information is totally
3.1 IVASS Regulation No. 40/2018 (Regulation 40)
replaced, with the indication that:
is modified to include, among other things, the
following definitions:
• Annex 3 must be handed over to the policyholder
before the execution of a policy. The same
• “independent advisory activity” – which is defined
obligation applies in case of renewal or execution
per reference to Article 24 bis, paragraph 2, of the
of a new insurance policy, only where material
Financial Consolidated Act;
changes occurred;
• “insurance distribution” – which remains the same
• in the distributor’s premises, the information
save for the integration triggered by the necessity of
contained in Annexes 3 and 4 ter must be rendered
including the independent advisory activity among the
available to the public, together with a list of the
activities falling within the definition of distribution;
insurance companies with which the intermediary
has business relations;
18DLAPIPER.COM
• Annexes 3 and 4 ter must be reviewed periodically independent advisory activity and access to a wide
and in any case on a quarterly basis; range, at a competitive price, of IBIPs that may
satisfy the client’s needs;
• before the conclusion of an insurance policy,
Annexes 3 and 4 ter must be handed over to • they do not offer direct benefits to the insurance
the policyholder. company, its shareholders or employees; and
• they are justified by a continuative benefit for
3.5 The precontractual information must be clear
the client.
and brief.
In addition to the above, an inducement is considered
3.6 A declaration on the consistency of the product
inadmissible when the distribution activity is biased or
to the client’s insurance needs must be provided.
negatively impacted by the inducement. Intermediaries
must keep evidence of the inducement received
3.7 As for IBIPs the following is introduced:
as enhancing the quality of the service rendered.
Such obligation may be considered fulfilled through
(a) Pre-contractual information: Before the conclusion
the information contained in the KID.
of the contract, in addition to the pre-contractual
information, intermediaries and insurance companies
(c) Inducements and independent advisory activity
must hand over a copy of a declaration, drafted as
In case of independent advisory activity, only non-
per Annex 4 bis, which contains information on the
monetary benefits of minor entity which may enhance
distribution model, the distribution activity rendered
the quality of the service rendered may be accepted
and the advisory provided and, in case of use of distance
such as information or documentation in relation to
selling techniques, a document drafted as per Annex 4
an IBIP; materials drafted by third parties, participation
ter. Intermediaries and insurance companies must also
to seminars, conventions and other training events;
provide the policyholder with a generic description of
hospitality of a reasonable value. Minor monetary
the nature of the product, of the relevant underlying
benefits must be reasonable and proportional and,
risks, of the costs and expenses attached. Such
in any case, as such as not to impact negatively on
description, which must also include a description of
the intermediary’s behavior. Such benefits must
the risks associated with the insolvency of the issuer of
be communicated to the policyholders before the
the underlying assets of the policy may be replaced by
distribution activity and the independent advisory
the KID or the additional IPID, where these two latter
one and can be described in a generic form.
documents contain all the information requested;
(d) Suitability and appropriateness of the product to
(b) Inducements: Inducements are not allowed,
the client’s insurance needs
unless they or the inducement schemes applied
If advisory activity is provided, insurance intermediaries
enhance the quality of the distribution activity and do
and companies must recommend insurance products
not jeopardize the fulfilment of the obligation to act
which are consistent with the insurance needs of the
honestly, fairly and professionally in the best interest
client and are adequate to the policyholder’s needs,
of the client. The existence, nature and amount of the
as per Article 121 septies, paragraph 2, of the Code of
inducements or the relevant calculation method must
Private Insurances.
be clearly communicated to the client, together with
the communication of the modalities by which such
Information regarding the age, health, working activity,
inducements may be transferred to the clients. The
family, insurance situation and expectations must be
obligations in matter of inducements do not apply
gathered together with the knowledge and experience
where these latter or the relevant inducement schemes
of the investment, the client’s financial situation,
allow the carry out of insurance distribution activities.
investment objectives, etc.
Inducements are deemed to enhance the quality of the
services rendered where all the following conditions
If the product is deemed not suitable to the client,
are met:
insurance intermediaries and companies must inform
the client of such circumstance, by providing the latter
• they are justified by additional or higher quality
with a specific declaration. A suitability declaration
services to the clients, in proportion to the level
must be otherwise provided before the conclusion
of the inducements received, such as non-
of the contract.
19#DERISK
Where non-advisory activity is provided, insurance As far as the AVS of unit linked products is concerned,
intermediaries and companies must verify that the letter f) regarding the amount of the costs and expenses
product is appropriate to the client’s insurance needs. applied is abrogated and replaced by paragraphs
Assessment is based on the age, health, working 7 bis requesting insurance companies to provide
activity, family, insurance situation and expectations the policyholder with:
of the client. Information on the client’s knowledge of
the proposed product or requested must be asked. • the amount of the costs and of the expenses, with a
If the intermediaries and the companies assess that the separate indication of the costs and of the expenses
product is not appropriate, they must warn the client regarding distribution, not connected to a market risk,
of such circumstance in a specific declaration. If the borne by the policyholder in the reference year or for
information is not provided by the policyholder or the unit linked contracts linked to UCITs, the number of
information provided is not sufficient, intermediaries the units withheld for the management fees in the
and insurance companies must warn the client of their reference year, with an indication of the costs relating
impossibility to draw any conclusion in this respect. to distribution and
• an illustration that shows the cumulative effect
(e) Mandatory advisory activity
of the costs on the product’s performance,
Advisory activity becomes mandatory for complex
including the oscillation of the costs and an
IBIPs. If the product is not consistent with the client’s
accompanying description.
insurance needs, the product cannot be sold. Insurance
companies must provide the intermediaries with a list of
4.2 Paragraph 8 bis is added to clarify that the
the products for which advisory activity is mandatory.
distributors shall transmit to the insurance company,
upon previous instruction by the same, all information
Amendments to IVASS Regulation No. 41/2018 in the
necessary to enable the insurer to have a complete
matter of disclosure requirements, advertisement and
view of all the costs and expenses related to the
manufacturing of insurance products
distribution activity, also when such distribution
is carried out through horizontal collaborations
4.1 Article 25 of the Regulation providing for the
among intermediaries.
Annual Valuation Statement (AVS) is amended in
order to replace the AVS by the “Documento Unico di
IVASS Order No. 97/2020 will enter into force on
Rendicontazione” (unique accounting document).
March 31, 2021.
20DLAPIPER.COM
Case law updates
contributed by Angelo Borselli, Valentina Grande
Italian Supreme Court, In this case the policy included a claims-made clause
February 18, 2020, No. 3999 requiring the insured to notify the claim within one
year after termination of the contract, provided that the
INSURER’S RECOVERY ACTION AGAINST
insured received a request for damage by a third party
THE INSURED
within the relevant policy period. The Court in particular
The liability insurer that, in the absence of the
found that this clause violates Article 2965 ICC, providing
requirements set by Article 1917 Italian Civil Code
for the nullity of agreements that establish forfeitures
(namely, advance notice to the insured or a request
that make it excessively difficult for one of the parties to
by the insured to make the payment), voluntarily
exercise its rights, as the clause subjects the indemnity
indemnifies the injured third party following a first
right of the insured to a condition (i.e. the third party’s
instance judgment against the insured has a recovery
claim) outside its control, thereby denying coverage
action against the insured and not the third party in
where the third party’s claim is not made within the
the event that on appeal the liability of the insured is
relevant policy period. According to the Court, this
affirmed while no insurance coverage is found to apply,
clause does not pass the test under Article 1322, par. 1,
as any payment made by the insurer to the third party
ICC, that requires the clause to be actually in accordance
in that case has to be considered as a spontaneous
with the rules and principles governing the liability
payment made on behalf of the insured in favor of the
insurance contract type.
injured the third party.
Italian Supreme Court,
Italian Supreme Court,
June 10, 2020, No. 11092
April 23, 2020, No. 8117
EXCLUSION OF COVERAGE AND
VALIDITY OF CLAIMS-MADE CLAUSES
CONTRACT INTERPRETATION
The Court confirmed the validity of claims-made
The insurer cannot deny coverage based on captious
clauses, following its previous decisions on this issue
arguments that would disown the essence of the
(in particular, judgment No. 9140 of May 6, 2016 and
insurance contract and its practical objective as this
No. 22437 of September 24, 2018).
would be contrary to the principle of good faith in
contract interpretation.
As claims-made clauses restrict coverage to claims made
against the insured during the policy period, they do not
Italian Supreme Court,
qualify as limitations on the insurer’s liability under the
August 31, 2020, No. 18076
above-mentioned Article 1341 ICC, but they determine
the content of the insurance contract. INSURANCE CONTRACT AND LEGAL EXPENSES
In liability insurance the insured has to be indemnified
Italian Supreme Court, of the legal expenses that it has to pay to the winning
May 13, 2020, No. 8894 party up to the policy limits, and of its own legal costs
even in excess of the policy limits but within the limits
INVALIDITY OF CLAIMS-MADE CLAUSES
set forth under Article 1917 ICC (i.e. up to one-quarter
The Supreme Court ruled that in liability insurance the
of the policy limits, or a sum greater than the policy
claims-made clause that excessively limits the rights of
limit is due to the injured third party, the legal costs
the insured is null and void.
are divided between the insurer and the insured in
proportion to their respective interests).
21#DERISK
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