During the Council of Ministers on March 20, the Italian Government approved the Decree for the stability and integrity of the markets, also known as the Brexit Decree.
We talk about the effects on the insurance market with the Salvatore Iannitti, Head of the corporate and regulatory insurance practice of Norton Rose Fulbright in Italy.
What are your first impressions regarding the Government’s approval of the Brexit Decree?
It is still too early to draw precise conclusions considering that the Italian Supervisory Authorities of the insurance market have not yet released their official interpretations of the Government’s action and that some provisions of the Brexit Decree are not very clear.
However, in general the feeling is that the Government’s approach is much harder than what was implied by the press release issued by the Ministry of Economy and Finance (MEF).
This result may be due to the heated discussions between the various political parties involved in the negotiations of the exit of the UK and Northern Ireland from the EU, which contemplate a Hard Brexit scenario, as does the Decree.
What part of the Decree leaves you perplexed?
The rule in the Decree that prohibits intermediaries with a registered office in the UK from exercising distribution activities in the Italian territory with immediate effect, except that “operations necessary for the orderly closure of the already existing distribution relationships” may be carried out for a period exceeding six months. It is not easy to understand what this means. For example, regarding “necessary operations,” shall these intermediaries simply and only withdraw from existing distribution agreements? Or may these intermediaries also perform the activities necessary to facilitate the passage of a client to a new partner? In many cases, I imagine that the new partner would simply be a new company established in Europe, part of the same group.
Interesting. Do you see other anomalies or gaps that you would like to share?
In my opinion, the reference to the ban on intermediaries “tacitly renewing existing agreements” is ambiguous and ineffective. The reference seems to refer to distribution agreements and not to intermediate pre-Brexit policies tacitly renewed after the withdrawal date.
What can you tell us instead about provisions concerning the position of the insurance companies?
The question is more complex, but certain issues have been resolved in part by drawing inspiration from existing rules and regulations relating to the loss of license.
In brief, underwriting new policies is prohibited and tacit renewal clauses become ineffective; during the transition period, which is 18 months (as compared to 6 for intermediaries), insurance companies can continue to manage existing contracts and covers, even by paying claims.
This window should guarantee the management of short tail risks, considering that the tacit renewal clauses are ineffective and the Policyholders will have the right to exit from the multi-year policies.
However, it will only postpone the problem of long tail risks, unless the insurance company in the meantime can free itself of the portfolio.
Thank you Avv. Iannitti. The scenario is clearer than what it seems. I am sure that many aspects of the Decree will be the subject of different points of view!
I agree. For example, the Decree explicitly refers to the need to avoid “any prejudice causing damages to contracting parties, insured and other entitled parties,” … ignoring – deliberately or unintentionally – the wholesale intermediaries market.