Risk minimisation is the ultimate goal of insurance. Its purpose is to buy peace of mind and to soften the financial blow should the worst case scenario occur. Insurance is a major part of everyday life, and an even more integral part of business. Insuring your business is ensuring the protection of your biggest asset; your livelihood and future. Insurance law is therefore equally as important, covering all regulatory aspects of insurance, covering the regulation of insurance businesses, the content of insurance policies, especially with regard to consumer policies, and the regulation of the handling of claims.
Talking to Lawyer Monthly on the complexities of the insurance and reinsurance sector is Nicolò Juvara, Partner at the global law firm Norton Rose Fulbright, and head of the Italian practice and the corporate and M&A team there. Nicolò describes the extent of change the Italian insurance sector has undergone in recent years, the industries that are strong in the Italian insurance market, and talks about the potential to be found in upcoming EU directives in the insurance sector.
The insurance sector in Italy has undergone significant changes over the past two decades. I received my first significant mandate from an insurance client back in 1998, when I advised an Italian insurance company on the listing of its shares on the Italian stock exchange. In the context of that matter, I had to quickly become familiar with the peculiarities of the insurance industry. At that time, Italy was considered an under-insured country. It had a large number of small insurers and the market was dominated by motor insurance, for which tariffs were regulated.
Motor insurance is still at the core of the Italian insurance industry, but the market has been liberalised and, as a consequence, has become more profitable. The arrival of aggregators increased competition and enlarged the offer of different and innovative types of insurance products and coverage options. The industry has also consolidated; many small companies and operators have integrated into larger groups or simply disappeared.
Moreover, intermediaries, while still representing the dominant distribution channel, have become more specialized and, unlike in the past, face strong competition from alternative channels, like banks and financial service companies, as well as the Internet.
Looking ahead, insurance companies, intermediaries, and other players in the insurance market in Italy know that in order to survive the next decade, they will have to be more efficient and creative in meeting the changing needs of clients. At the top of the agenda of any insurer operating in Italy today, as in many other countries in Europe and around the world, is regulation, including first and foremost, the new Solvency II rules, and rules regarding consumer protection.
New rules and regulations inevitably have an impact on business processes, from product governance and design to distribution and claims management. The ability of a company to swiftly make the necessary changes in processes to comply with new rules and regulations, is key to getting new products to the market, and, in the long run, to the productivity and profitability of the insurers. On the other hand, lack of strategy and a slow, reactive, approach to new rules and regulations are two of the most common mistakes that insurers make.
In light of certain common trends arising from the EU legislation, new rules and regulations can and must be anticipated; they should be regarded as an opportunity to adopt a more modern approach towards the market. Italian and foreign insurers alike cannot afford to cling to antiquated business models and traditional products. Innovation and flexibility will be key characteristics of the business models of the next generation of successful leaders in the Italian insurance market.
Besides Solvency II, Italy’s insurance sector regulator, IVASS, has proposed new legislation which will further simplify the contractual documentation of insurance policies and communications to insured parties. This is designed to help insurers be more efficient and technologically advanced, to help them reduce administrative costs and, most importantly, reach the millenniums, the younger part of the potential client base in Italy, without compromising on consumer protection.
As a member of a highly respected law firm with a strong international insurance practice, we are often called upon to assist in consultation procedures relating to insurance legislation. In my view, one of our greatest contributions to these proceedings, as lawyers specialising in the industry sector with years of experience across jurisdictions, is to be able to explain and demonstrate how, sometimes, an overly formalistic approach to rules and regulations can damage not only the business of the insurers, but also the best interest of the consumers.