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In 2016, the European Commission issued Directive 2016/97/EC on insurance distribution (IDD), which recasts and repeals Directive 2002/92/EC on Insurance Mediation (IMD), thus reforming the regulatory framework concerning the sale of insurance products. The main objective of the IDD is to harmonise national provisions on insurance and reinsurance distribution throughout the European Union, in order to face the increased complexity of the insurance market and ensure a high level of consumer protection.
On 16 May 2018, the Italian Government approved Legislative Decree 68/2018, which transposes the IDD into national law. The Decree, which will come into force on 1 October 2018, significantly impacts the rules on insurance mediation set out by the Italian Code of Private Insurance (CAP).
The following are some key changes to the pre-existing regime.
Extension of the scope
Insurance products can be sold by different categories of subjects. By acknowledging this, the purpose of the IDD is to guarantee the same level of protection regardless of the channel through which customers purchase the product. The Directive, therefore, introduces the concept of insurance distribution, which is broader than that of insurance intermediation covered by IMD, in order to extend its scope to all sales of insurance products.
In the current structure of the CAP, the regulation of distribution only concerns intermediaries in the strict sense: agents, brokers, direct canvassers, banks, financial intermediaries and stock brokerage companies.
The Decree implementing the IDD extends the list of the addressees of the legislation.
Firstly, it also includes insurance undertakings that sell insurance products directly among the distributors. In this case, the insurance company must identify a distribution manager and communicate his/her name to the Institute for the Supervision of Insurance (IVASS). The manager and the employees involved in the distribution activity must fulfil certain integrity and professional requirements.
Secondly, the Decree introduces the category of ancillary insurance intermediaries. These are persons who pursue a principal professional activity other than insurance distribution and who sell insurance products that are only complementary to the goods or services provided. Ancillary insurance intermediaries must register in the new Section F of the Register of Intermediaries (RUI), must possess adequate knowledge and professional skills, and will be subject to various rules provided by the CAP.
Finally, the new regulation also considers as insurance distribution the provision of information on one or more contracts of insurance via a website, when the customer is able to directly or indirectly conclude an insurance contract at the end of the process. In this case, the owner of the internet domain must be registered in the RUI and the activity will be subject to a number of rules provided by IVASS aimed at transparency, correctness and protection of the client.
Rules of conduct
The IDD aims to restore consumer confidence after recent financial turbulence. With this in mind, the new framework provides for a reinforcement of the transparency obligations and the rules of conduct.
In general, distributors of insurance products must operate with fairness, honesty, professionalism and transparency, and present information in a form that is clear and not misleading. An important role is played by the principle of the best interests of customers. In this regard, the distributor must not adopt remuneration policies or sales objectives that would encourage him/her or his/her employees to offer an inadequate product to customers.
Furthermore, before concluding a contract, the distributor must acquire all relevant information to identify the customer’s needs, in order to assess the adequacy of the contract offered and provide the customer with information on the product in an objective and clear fashion, so as to allow him/her to take an informed decision.
The IDD provides for a specific regulation of conflicts of interest regarding the distribution of insurance-based investment products. The Italian legislator has, however, chosen to extend the application of this regulation to all other insurance products, with the aim of increasing the protection of the customer. In particular, distributors shall operate effective organisational and administrative arrangements with a view to take all reasonable steps to prevent conflicts of interest from adversely affecting the interests of their customers. Where these arrangements are not sufficient to ensure that risks of damage to the customer’s interests will be prevented, the distributor shall inform the client of the existence of the conflict of interest.
Furthermore, before concluding the contract the distributor must provide the client with a series of information on his/her activity, his/her remuneration and his/her relations with the insurance companies. Specific provisions are also provided for cross-selling practices and distance marketing.
The pre-contractual information was revised, with the provision of new documents that will replace the current information note.
The current regulation is the result of the combination of different European and national legal sources. The new Article 185 of the CAP provides a summary that specifies the pre-contractual documents relating to the different types of insurance products:
for non-life products, the IPID (Insurance Product Information Document) provided for by the IDD and by Implementing Regulation (EU) no 2017/1469;
for life products, the ‘Life-IPID’ provided for by the Italian legislator as a national specificity and modelled along the lines of the non-life IPID; and
for Insurance Based Investment Products (IBIPs), the Key Information Document (KID) provided for by regulation (EU) no 1286/2014 and already in force from 1 January 2018.
The new documents are intended to simplify and make pre-contractual documentation easily understandable. The legislator is aware that if the document is too long or complicated the client may not read it or not understand it. Therefore, the new legislation establishes that the key information must be provided on a short and stand-alone document with schematic and standardised content. The information is structured in question/answer form, using simple language and graphic symbols.
Considering the closed format of the IPID, the Italian legislator has provided that a specific ‘additional IPID’ must also be given to the client. This further document shall contain supplementary and complementary information, with the aim of providing the customer with more in-depth knowledge of both the product and their rights and obligations.
Alternative dispute resolution systems
IDD provides that Member States shall ensure adequate and effective, impartial and independent out-of-court complaint and redress procedures for the settlement of disputes between customers and insurance distributors.
The implementing Decree provides for the establishment, within IVASS, of a new out-of-court dispute resolution body, which will be regulated in a way similar to the existing Banking and Financial Ombudsman (ABF).
The new ADR procedure will apply not only to disputes between customers and insurance distributors but also to those between customers and insurance companies. The objective is to reduce litigation and offer simpler, faster and less expensive solutions for insurance disputes.
The IDD also provides for a strengthening of the sanction system for the breaches of the rules on insurance distribution. The Italian legislator, implementing the directive, has decided to carry out an overall review of the sanctions provided for by the CAP, also setting new rules for violations relating to the pursuit of insurance business.
The transposing Decree provides for higher pecuniary sanctions, also based on a percentage of total annual turnover, so as to guarantee the dissuasive effect of the sanction and eliminate the advantage obtained by the author of the violations. In the presence of certain conditions, sanctions against individuals are also provided.
Furthermore, new non-pecuniary sanctions are envisaged: both the temporary disqualification from occupying certain functions in the company and the possibility for IVASS to issue a cease and desist order, proscribing continuation of the unlawful conduct.
In order to reduce the number of sanctioning procedures, it is also envisaged that more violations of the same type committed within a certain time frame are charged with a single act.
The Legislative Decree aimed at implementing the IDD introduces significant changes in the current legislative framework, redesigning large sectors of the CAP.
The new regulation raises the level of consumer protection, consolidating and specifying the principles and rules addressed to insurance distributors and including within its scope all the subjects that sell insurance products.
The new rules are not limited to insurance mediation: some important changes, such as the introduction of new pre-contractual documents, for example, concern the pursuit of insurance business more generally.
The insurance dispute sector will also change with the introduction of the new ADR procedure.
Lastly, the reform of the sanctioning system, with the provision of more dissuasive sanctions, is of definite interest for all insurance market parties.
Companies and intermediaries have closely followed the process of transposing the Directive into Italian law. With the final version of the Decree and the Draft Regulations issued by IVASS which provides for secondary level legislation, a solid basis now exists for companies to assess compliance in view of the entry into force of the new rules.
 Based on the changes introduced by the Decree, the Institute for the Supervision of Insurance (IVASS) has recently submitted for public consultation three Draft Regulations that will provide the necessary implementing rules. In particular, these Draft Regulations regard (a) the distribution of insurance and reinsurance products, (b) transparency, disclosure and design of insurance products, and (c) the procedure for applying administrative sanctions.
 See Article 107-bis of the CAP.
 Article 109, para 1(c), and Article 111, para 1 of the CAP.
 Article 109-bis of the CAP. However, on the basis of Article 107 paragraph 4 of the CAP, ancillary intermediaries will be excluded from said regulation where the insurance they sold covers only certain limited risks and the amount of the premium does not exceed €600.
 See Article 106 of the CAP.
 Article 109, para 2-bis of the CAP.
 See Article 119-bis of the CAP.
 See Article 119-ter of the CAP.
 Articles 27-28 of the IDD.
 See Article 119-bis of the CAP.
 See Articles 120 to 120-ter of the CAP.
 Article 120-quinquies of the CAP.
 Article 121 of the CAP.
 See Article 185, paragraphs 3 to 5, of the CAP.
 Article 15 of the IDD.
 Article 187-ter of the CAP.
 See Article 310 et seq of the CAP.
 See Article 311-sexies and Article 324-septies of the CAP.
 See Article 311-ter and Article 324-quater of the CAP.
 See Article 311-quater and Article 324-quinquies of the CAP.
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