After considering the critical issues revealed during respective enquiries – partly in response to reports by several consumer associations – IVASS, the Italian insurance regulator, and the Bank of Italy published a joint letter addressed to insurers and insurance intermediaries registered in Section D of the Register of Insurance and Reinsurance Intermediaries (including banks and financial intermediaries), with the aim of increasing the level of protection for parties that purchase insurance policies paired with mortgages and other loans (ie, payment protection insurance).
The main issues revealed in this respect include:
- the spread of policies characterised by exclusions, limitations and waiting periods resulting in a significant reduction in the scope of cover;
- the offer of conditions that are not always consistent with the principles of transparency and integrity, which in some cases lead clients to purchase payment protection insurance without meeting the subjective requirements for cover (eg, an insurance policy reserved for private sector employees purchased by a government employee); and
- frequently excessive and unjustified costs.
In consideration of the above, the supervisory authorities have identified different areas of intervention for market operators regarding the structuring and offering phase as well as the distribution phase for payment protection insurance policies.
In cases of policies with 'rotating cover' (ie, that provide cover for various risks in return for the payment of a single premium, but operate only on a rotating basis according to the subjective conditions of the purchasers), insurers must:
- modify the structure of the policy so that it is better suited to the specific characteristics and needs of the clients for which it is 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; and
- prepare an internal control structure suited to verifying the efficiency of the distribution network as well as compliance with the instructions provided and the marketing of products in respect of the specific client base.
Further, insurers must:
- revise the general conditions of payment protection insurance policies to remove clauses that entail a significant reduction of cover (eg, the duration of cover is not consistent with the term of the loan, the number of payments that may be covered by the insurer is less than the total number of loan payments or there is an overly extended waiting or qualifying period);
- use questionnaires that allow the future insured to provide an informed account of his or her state of health and indicate any previous illness, instead of a "unilateral declaration of good state of health". With respect to policies that have already been purchased, IVASS and the Bank of Italy further recommend that, in cases in which the insured has not been put in a position to provide a thorough account of his or her previous health conditions and a dispute arises relating to that matter, insurers should adopt a policy aimed at favouring the payment of insurance indemnities;
- verify satisfaction of the conditions of insurability and the suitability of the product to the client's needs;
- adopt solutions involving a full refund of the premiums and expenses paid if the policies have been purchased by persons that do not meet the subjective requirements for cover; and
- refund the portion of the premium paid but not enjoyed in the event of early repayment of the loan with which the policy is paired, specifying the criteria and methods of calculating this 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 Register of Insurance and Reinsurance Intermediaries to ensure that:
- the pre-contractual documentation relating to the loan agreement and the insurance relationship is distinct and that the pertinent cost is separately indicated in each set of documents. The contractual conditions of the policies must also clearly indicate the purchasers' right to withdraw from the policy; and
- after contracting a policy, clients purchasing cover receive a notice summarising its characteristics and expressly indicating the client's right to withdraw from the policy.
Insurance intermediaries must:
- adopt offering conditions aimed at avoiding coercion in the negotiation of the loan and the insurance cover and allow clients to evaluate whether the policy is suited to their needs;
- 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 in order to allow the policyholder to make an informed decision consistent with his or her needs during the policy contracting phase.
The supervisory authorities have therefore advised registered insurers and insurance intermediaries that their administrative bodies should adopt:
- specific policies for managing payment protection insurance policies already contracted as well as related complaints in light of the indications summarised above; and
- a plan illustrating the initiatives outlined – within 90 days of publication of the letter in question – 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 within the following 90 days.
For further information on this topic please contact David Maria Marino at DLA Piper Italy by telephone (+39 02 80 61 81) or email (email@example.com). The DLA Piper website can be accessed at www.dlapiper.com.
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