Policies paired with loans - Measures protecting clients
Considering the critical issues brought to light during the respective enquiries, in part in response to reports by several consumer associations, on 26 August 2015 IVASS and the Bank of Italy (the “Supervisory Authorities”) published a joint letter addressed to insurers and insurance intermediaries registered in Section D of the RUI - Register of Insurance and Reinsurance Intermediaries (including banks and financial intermediaries), with the aim of increasing the level of protection of persons who purchase insurance policies paired with mortgage and other loans (PPI - Payment Protection Insurance - also referred to hereinafter as the “Policies”).
The main critical issues brought to light in this respect include, in short:
- The spread of Policies characterised by exclusions, limitations and waiting periods resulting in a significant reduction in the scope of cover
- Offering conditions not always consistent with the principles of transparency and integrity that in some cases lead clients to purchase Policies without meeting the subjective requirements on which cover is conditional (for example, an insurance policy reserved for employees of private companies purchased by a government employee)
- Frequently excessive and unjustified costs.
In consideration of the foregoing, the Supervisory Authorities have identified for market operators (insurers and insurance intermediaries registered in Section D of the Register of Insurance and Reinsurance Intermediaries) various areas of intervention, as regards both the structuring and offering phase and the distribution phase for Policies.
In particular, insurers must:
- In cases of Policies with 'rotating cover' (ie Policies that provide cover for various risks in return for payment of a single premium, but only operate on a 'rotating' basis according to the subjective conditions of the purchasers):
- modify the structure of the Policies so that they are better suited to the specific characteristics and needs of the clients for which they are intended
- grant a right of withdrawal to be exercised within 60 days of purchase
- provide specific instructions to networks of intermediaries for the proper verification of the insurability of risks, the suitability of products to clients and pre-contractual information
- prepare an internal control structure suited to verifying the efficiency of the distribution network and compliance with the instructions provided and the marketing of products in respect of the specific client base
- Conduct revisions of the general conditions of Policies to remove clauses that entail a significant reduction of cover (for example, the duration of the insurance cover is not consistent with the term of the loan, the number of payments that may be covered by the insurance company is less than the total number of loan payments; or an overly extended 'waiting period' and/or 'qualifying period')
- Use questionnaires that allow the future insured to provide an informed account of their state of health and indicate any previous illness, instead of the 'unilateral declaration of good state of health'. With respect to Policies that have already been purchased, the Authorities further recommend that, in cases in which the insured have not been put in a position to provide a thorough account of their previous health situation, and a dispute arises relating to the matter, insurance companies should adopt a policy aimed at favouring the payment of insurance indemnities
- Verify the satisfaction of the conditions of insurability and the suitability of the product to the client’s needs
- If the Policies have been purchased by persons not meeting the subjective requirements on which cover is conditional, adopt solutions involving a full refund of the premiums and expenses paid
- In the event of early repayment of the loan with which the Policy is paired, refund the portion of the premium paid but not enjoyed, specifying the criteria and methods of calculating such portion in the conditions of the Policy.
With respect to the distribution of Policies, the Supervisory Authorities have instructed insurers and insurance intermediaries registered in Section D of the RUI to ensure that:
- The pre-contractual documentation relating to the loan agreement and that relating to insurance relationship are distinct and the pertinent cost is separately indicated in each set of documentation. The contractual conditions of the Policies must also clearly indicate the purchasers’ right to withdraw from the Policy
- After contracting a Policy, the clients purchasing the cover are to receive a notice summarising the characteristics of the insurance cover and expressly indicating the client’s right to withdraw from the Policy.
Insurance intermediaries must:
- Adopt offering conditions aimed at: (a) avoiding coercion in the negotiation of the loan and insurance cover; and (b) allowing clients to evaluate whether the Policy is suited to their needs
- In order to allow the policyholder to take an informed decision consistent with his or her needs, during the Policy contracting phase, verify whether the Policy is suited to the client’s insurance needs and provide a clear illustration of the characteristics, duration, costs and limits of the insurance cover.
The Supervisory Authorities have therefore advised both insurers and insurance intermediaries registered in Section D of the RUI that: - their administrative bodies should adopt (a) specific policies for managing Policies already contracted and related complaints in light of the indications summarised above; (b) within 90 days of publication of the letter in question, a plan illustrating the initiatives outlined to ensure that the Policies and offering and fulfilment conditions are consistent with the Supervisory Authorities’ indications. Once approved by the control body, this plan must be implemented in the following 90 days.