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January 20, 2020 Italy: Review of public consultation on Italian insurance distribution Executive summary The Italian Insurance Supervisory Authority (IVASS) and the Italian financial markets Supervisory Authority (CONSOB) issued a public consultation on 23 September 2019 regarding the implementation of Directive 2016/97/EU on insurance distributions (IDD Directive or IDD). As part of the consultation, IVASS published the following papers:
Consob has published:
This Alert summarizes the aspects considered as more significant for the industry. Detailed discussion A) Consultation document no. 1/2019 – on oversight and product governance requirements for insurance products The Draft Regulation reported in the Consultation document no. 1/2019: (i) regulates the approval process of insurance products, setting forth specific obligations for the manufacturer, who is required to identify the target market of an insurance product and the categories of persons to whom the product cannot be distributed (negative target market); (ii) regulates the distribution of insurance products, specifying the obligations of the intermediaries registered in the sections of the Intermediaries Register held by IVASS (the RUI) involved in the distribution activity; and (iii) provides specific provisions for the approval and distribution processes of insurance investment products. More specifically, the Draft Regulation:
B) Document in consultation no. 2/2019 – on additional requirements for the distribution of insurance investment products The Draft Regulation pursuant to the document in consultation no. 2/2019 implements the regulatory framework for Insurance-based investment products (IBIPs products1) for the distribution channels for which IVASS is competent and includes integrations and amendments to IVASS Regulations no. 40/2018, 41/2018, 23/2008, 24/2008 and 38/2018, and aims to rationalize and simplify the obligations for operators and increase the level of protection for policyholder. i. Proposed amendments to IVASS Regulation no. 40 of 2018 The main topics that will be amended in accordance with the above reported Public Consultation include: Pre-contractual information (art. 56) Attachments 3 and 4 now titled “Distributor Information” and “Non-IBIP Insurance Product Information”, and Attachments 4-bis “Insurance Investment Product Information” and 4-ter “List of Distributor Conduct of Business Rules” have been amended to reform the pre-contractual information to be provided to the clients. Assessment of policyholder’s demands and needs (art. 58) The new par. 4-bis of art. 58 requires the delivery of an appropriate declaration, signed by the policyholder and the distributor, in which the latter certifies that the insurance product meets the demands and needs of the policyholder, specifying the relevant reasons (par. 5 and 6 of art. 58, of the current version of the Regulation no. 40/2018 according to which the sale of the insurance product was permitted even if it did not meet the customer’s demands and needs or if the distributor was unable to ascertain that the product met the customer’s demands and needs due to the policyholder’s refusal to provide the requested information, have been deleted accordingly). Cross-selling (art. 59-bis) Art. 59-bis, which identifies the additional information to be provided in the case of sale of insurance products combined with an accessory product/service different from insurance products, is included (i.e., the costs associated with the purchase of the package and its components and the key information relating to the characteristics and risks not linked to the prices). Storage of documentation (art. 67) Art. 67 is amended to clarify that distributors shall keep the relevant documentation for the entire duration of the insurance relationship or for a longer period provided for by law and, in either case, for at least five years. This provision is also amended by providing that distributors shall also keep documentation relating to the product and the product approval process received by companies and intermediaries that manufacture insurance products. Recording of telephone conversations and electronic communications (art. 67-bis) The new art. 67-bis introduces rules on the recording of telephone conversations and electronic communications. It establishes that distributors who promote or place insurance contracts by making commercial communications using distance communication techniques shall keep records of telephone conversations or electronic communications relating to such contracts, even if they have not led to the actual conclusion of the contracts. For this purpose, distributors are required to take all reasonable measures to record telephone conversations and electronic communications made, transmitted or received by electronic equipment and to prevent employees, staff and collaborators from making, transmitting or receiving telephone conversations and electronic communications on private equipment that they are unable to record or copy. To this end, prior to the promotion of an insurance contract, distributors are obliged to inform customers that telephone conversations or communications between them, that generate or may generate the conclusion of insurance contracts, will be recorded. In the absence of such communication, distributors must refrain from carrying out insurance distribution by telephone. Training and professional development The integration of the provisions of art. 17, 22, 41 and 48 of IVASS Regulation no. 40/2018, is proposed which provide, among other things, that employees of insurance intermediaries operating inside or outside the premises of intermediaries registered in sections A, B, D or F of the Register of intermediaries held by IVASS (RUI) and employees of insurance companies must have the qualification of a second level diploma at a minimum, as already provided for first level intermediaries. Rules of conduct for the distribution of insurance investment products (Chapter II-bis) Chapter II-bis on “Rules of conduct for the distribution of insurance investment products” has been added, which contains the following Sections:
Art. 68-bis identifies the rules on the distribution of non-IBIPs products which also apply to IBIPs when they are distributed by distributors subject to IVASS supervision.
Art. 68-ter introduces the obligation to provide the policyholders of IBIPs products with Annex 4-bis and policyholders of non-IBIPs with Annex 4. This is without prejudice to the obligations to draw up and deliver the pre-contractual and contractual documentation as required by the provisions in force and, in particular, Annexes 3 and 4-ter. Art. 68-quater sets forth additional obligations with respect to the requirements of the information provided on the product (those concerning the modalities of a possible comparison between different investment products or those concerning the indication of past and/or future performance of the instruments/indices used as underlying). Art. 68-quinquies requires the provision of advertising information consistent with the information included in the contractual documentation. When advertising communications contain an offer to sign the contract or an invitation to make an offer to purchase an IBIP, they must specify how to adhere to the offer and they must refer to the information package.
Art. 68-sexies identifies the general conditions under which, in connection with the distribution of insurance investment products, intermediaries and insurance undertakings may pay or receive inducements (fees or commissions or non-monetary benefits provided or received to or from any person other than the customer or a person acting on the customer’s behalf). Specifically, the incentives shall meet the following conditions:
Art. 68-septies sets out the conditions under which inducements are allowed and that an inducement is not allowed if the provision of the services to the customer is distorted or adversely influenced by it. This article establishes the activity of registration by intermediaries of the incentives received in relation to any payment or benefit received from or paid to third parties. Finally, it is established that in the case of horizontal collaboration, the information obligations are met by the intermediary who liaises with the policyholder. Art. 68-octies regulates the perception of inducements in the case of provision by intermediaries of advice on an independent basis (advice based on the analysis of a sufficient number of products, including necessarily those issued by insurance undertakings with which the distributor has no close links, which also includes the existence of an agency mandate). In particular, where the intermediary provides advice on an independent basis, it cannot receive monetary incentives and can only accept minor non-monetary benefits (reasonable and proportionate and must not influence the intermediary’s behavior without being detrimental to the interests of the customer).
Notwithstanding the obligation to assess the customer’s insurance demands and needs for all insurance products, this section regulates the distribution of IBIPs products with and without advice. In particular, this section regulates the sale under mandatory advice for IBIPs products other than non-complex products in accordance with Delegated Regulation (EU) 2017/2359 or IBIPs products that guarantee the recovery of premiums paid net of legitimate costs (art. 68-duodecies). For sales made with advice, art. 68-novies specifies the information to be requested to assess – in addition to the customer’s demands and needs – whether the product is suitable, according to procedures and policies determined by the distributor. The outcome of the assessment is included in the declaration of correspondence to the customer’s demands and needs and of adequacy (art. 68-decies). For sales made without advice, art. 68-undecies provides for the obligation to assess the demands and needs (excluding the financial situation, which is typical for sales with advice), as well as the degree of knowledge and experience of the customer with respect to the product sold. Notwithstanding the obligation to issue a declaration of correspondence with the customer’s demands and needs, this article foresees, in line with European legislation, the possibility of selling an inappropriate product by issuing a declaration of inappropriateness. ii. Proposed amendments to Regulation IVASS no. 41 of 2018 Art. 5 of the Document in consultation amends certain provisions of IVASS Regulation no. 41 of 2 August 2018. In line with the content of art. 121-sexies, par. 2, of the CAP, art. 25 on the annual statement of account for contracts relating to insurance investment products is amended: the provisions already set forth for unit-linked contracts are extended to all IBIPs products, for which the company provides policyholders annually with an analytical report on costs and expenses, including distribution costs. An obligation is also introduced for the company to collect from the intermediary distributor all the information necessary to provide the customer, in the annual statement of accounts, with information including costs and charges related to the distribution activity (Single Financial Statement). In addition, it is proposed to amend art. 15 and 21 of the aforesaid Regulation in order to align the order of the sections reported in the additional2 Life IPID (Insurance Product Information Document) and the additional IBIP IPID with the provisions of Annex 2 and Annex 4 to the Regulation, reporting, respectively, the structure of the additional Life IPID and the additional IBIP IPID. Finally, two annexes are amended:
iii. Proposed amendments to IVASS Regulation no. 23 of 2008 The Document in consultation contains the obligation for insurance undertakings having their registered office in another Member State of the European Economic Area, authorized in Italy under the Freedom of establishment (FOE) or Freedom of services (FOS) regime, to indicate in the estimate of whether they adhere to the direct compensation scheme referred to in art. 149 and 150 of the Private Insurance Code (so-called CARD), specifying that in case of non-adhesion the insured party will not be able to apply for compensation to his insurance undertaking but will necessarily have to apply to the insurance undertaking of the injured party. iv. Proposed amendments to Regulation IVASS no. 24 of 2008 Art. 2 of the Document in consultation contains the following amendments with regard to the complaints handling:
The Document in consultation also integrates art. 4, par. 2, letter b) of Regulation no. 24 – which indicates the area of complaints excluded from the competence of IVASS – with the reference to the “correct compilation of the KID.” The references to the information note (art. 10 of Regulation no. 24/2008) and to Annex 4 (art. 10-decies, paragraph 1 of Regulation no. 24/2008) are also updated, as they are no longer current. v. Proposed amendments to IVASS Regulation no. 38 of 2018 Art. 3 of the Document in consultation integrates par. 2 of art. 33, relating to the objectives of the compliance function, providing that in identifying and assessing the risk of non-compliance with the rules the company shall pay attention to compliance also with the rules relating to the governance and control process of insurance products. The amendments to the Intermediaries’ Regulations subject to consultation consist of the rewriting of Book IX of the said Regulations in relation to the transparency obligations and the rules of conduct with which supervised parties must comply when distributing IBIPs. The new provisions will apply to the distribution of IBIPs carried out by persons authorized to distribute insurance products, as defined under art. 1, par. 1, letter w-bis) of the TUF. The purpose of the text submitted for public consultation is to provide a framework as far as possible in line with the rules applicable to the provision of investment services and activities derived from MiFID II. In particular, the new Book IX regulates the following topics:
The public consultations were concluded on 15 November 2019 and the final text will be forthcoming. Endnotes 1. As regulated by the Delegated Regulation (EU) 2017/2359 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to information requirements and conduct of business rules applicable to the distribution of insurance-based investment products. 2. According to the CAP and IVASS Regulation no. 41 of 2018 among other precontractual documentation the Additional pre-contractual information document shall be delivered to the policyholders. For additional information with respect to this Alert, please contact the following: Studio Legale Tributario, Financial Services Law, Milan
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