S&P Analyzes Effects of Two New Italian Insurance Laws

Standard & Poor’s Rating Services has published an analysis – “Two New Italian Laws Regarding Insurance Settlement And Distribution Set To Jolt Insurers” – which examines the impact they will have on motor claim settlements and insurance distribution. They “are “destined to seriously affect the domestic insurance market,” S&P concluded.

“This is not a new scenario, as the Italian insurance industry historically has been prone to political intervention,” explained S&P credit analyst Paola Del Curatolo. “This time, however, the new rules look set to create clear winners and losers among insurance companies operating in the Italian market.”

S&P noted that the first of the new laws – decree 209/2005, which took effect in February 2007 – “has introduced for the first time the concept of direct settlement for motor claims.” After the law went into effect claimants are to be “indemnified by their own insurers, even if they are not at fault.” The law covers around 80 percent of all Italian auto claims.

As a result, S&P explained, Italy’s “insurers will adapt their rates, coverage, and client segmentation” in order to adapt. They will also need to increase their claims-management efficiency. “We expect companies with large motor portfolios to react more rapidly and adapt more easily to the new rule,” Del Curatolo noted. “As a consequence, we expect them to be immediate winners under the new regime, while smaller companies are not likely to fare as well.”

As those changes take place, S&P pointed out, insurers who “effectively create efficient claim settlement processes will be in a position to both strengthen their competitive position and improve their operating performance.” The process should therefore eventually lower “motor rates in the Italian market, bringing prices more in line with those in other European countries. In our opinion, in this case, government intervention will have a positive impact on the Italian insurance market, even though the law’s implementation has not been ideal.”

Turning to the second new regulation – part of the Bersani Decree, issued in 2006 – S&P explained that “among other changes in insurance legislation,” it would ban “the exclusive distribution of all non-life policies,” when all of the existing exclusive distribution agreements expire by Jan. 1, 2008.

“This ban is unique in the EU,” S&P noted, “and poses a new challenge for insurance companies, as their tied agents, who were previously selling products of only one company, will now be allowed to sell the non-life policies from other companies.

“The main question for the future is whether the ban will lead to increased competition, bringing down rates for non-life policies, or, on the contrary, boost prices by encouraging companies to pay agents higher commissions to maintain sales volumes.”

Del Curatolo indicated that S&P doesn’t think “this ban will significantly change the competitive landscape. On the other hand, the new law could be a good opportunity for foreign companies to enter the Italian market.” Foreign companies are generally minor players in Italy. Selling products through already-established agents might be an easy way to start or increase their Italian business.