REPORT ON THIRD-PARTY AUTOMOBILE INSURANCE
PRESS RELEASE
PRESS RELEASE
THIRD-PARTY VEHICLE INSURANCE: ANTITRUST AUTHORITY CALLS FOR SIMPLER FACT SHEETS AND ELIMINATION OF ALL POTENTIALLY IMPROPER CLAUSES. ONLY 4% OF CAR-OWNERS CHANGE INSURER
Excessive amounts of information disorient users and reduce their ability to evaluate different offerings. Elimination of tacit renewal, a single fact summary and, for policies falling due, an indication of percentage increases would facilitate competitive comparisons and greater transparency. Study carried out on 50 insurance companies.
A thoroughgoing review is needed of the rules on transparency in third-party vehicle insurance to provide more effective consumer protection, with explicit, significant fines for companies that do not substantially respect the information requirements.
This is the suggestion of the Italian Competition Authority in a submission sent to the Government, to Parliament and to the President of ISVAP. In the Authority's view, changes to the regulatory context aimed at simplification and rationalization could encourage competition among the products offered in the market, to the benefit of consumers in general in terms of lower prices, greater transparency and better service for third-party automobile insurance.
The Antitrust Authority has undertaken an analysis of the contractual conditions and the information sheets used by the 50 largest insurance companies (representing about 99% of third-party premium income), as well as numerous policy contracts signed by customers of the 30 largest vehicle insurers (representing about 90% of total third-party premium income).
This revealed an important lack of information for the insured, who is not provided with the tools to make an informed choice. In spite of a mass of often useless information, key elements needed to help choose amongst the various alternatives may be missing. The lack of transparent information is also a serious obstacle to mobility: in Italy each year only 4% of consumers change insurance company, compared with 21% in Germany and 35% in the U.K.
THE ANALYSIS
The Authority's study of third-party contractual documentation reveals numerous elements that make the fact sheets hard to understand and compare. In some cases, essential contractual conditions have been omitted and there is a lack of clear information as to the contract signed by the insured, who is often called upon to sign his specific agreement to potentially improper clauses that are shown only as the heading and/or the number of the contract condition.
While voluminous documentation is provided to the policy-holder at the time the contract is first signed, there is no easy access to key elements regarding choices for the succeeding periods, such as the premium set by the company upon renewal, any variations introduced in the contract conditions, or the effects on the future premium of the no-claims bonus system.
In this situation the consumer may be led into the error of thinking all products are interchangeable and so may not correctly evaluate the differences, for example, in terms of the cover offered by the products of different companies.
THE PROPOSALS
In the light of the analyses carried out, the Authority firstly considers it essential to review the whole set of information given to the consumer with a view to significant simplification: this may lead to the standardization of some information and procedures. Instead of an excess of information presented in a confused and heterogeneous manner, it would be preferable for the consumer to receive a clear statement of just the information needed to understand the product and the differences in the offerings of the different companies. This is a simplification that can be carried out only through regulatory intervention.
For the achievement of this aim, a number of solutions could be considered:
- SINGLE FACT SHEET. A single document for all companies, designed by the regulatory authority, covering the common data elements for this market.
- TRANSPARENT SUMMARY OF COVER AND NO-CLAIMS BONUS. A second document dealing with information relating to the individual company, produced according to a common standard and presented briefly and clearly, even as regards the typeface, allowing for an immediate comparison of the important variables. This second document should deal with the clauses specifying the risks covered and the operation of the no-claims bonus system. The consumer should also be made aware of the factors used by the company for calculating the premium, so as to be able to take advantage of any opportunities for savings (for instance, some insurers offer lower premiums for those who drive only a limited number of kilometres per year) and so as to be able to advise the company in good time of any variation in the risk profile.
4) PREMIUM DATA TO BE IMMEDIATELY AVAILABLE. An obligation on insurance companies to furnish the insured directly with immediately valid data on important aspects like the premium and the applicable no-claims coefficient. In particular, insurance companies should no longer be allowed to tell customers to go to their agency to find out the new premium, since that imposes a further burden on the consumer and an unjustified reduction in the time available to choose whether to renew the contract or to look for another offer.
5) AN END TO TACIT RENEWALS. Abolition, with a view to promoting competition, of the tacit renewal, thus implementing ISVAP's proposal.
6) CLEAR INFORMATION ON PERCENTAGE INCREASES IN PREMIUMS. More transparency in the information on the no-claims bonus mechanism. In particular, insurance companies should not be obliged to convert their systems to the existing one before liberalization: this is a system that further complicates the information problem. As an alternative, the risk summary could contain the insured's past insurance history over a sufficient number of years. Furthermore, before renewing the contract the insurance company should inform the insured in writing of the size, at least as a percentage, of any increase or reduction in the premium with or without a claim during the period the insurance is in force. In this way, the policy-holder would be in a position to know, in the case of an accident, whether it is cheaper to pay for the damage caused or to claim on the insurance policy. Such a measure could help reduce the number of claims made and hence the cost of handling them, thus benefiting the entire system.
Rome, 30 November 2007