PRESS RELEASE

THIRD-PARTY VEHICLE INSURANCE: IN ORDER TO REDUCE COSTS FOR MOTORISTS, THE AUTHORITY CALLS FOR REFORM OF THE DIRECT COMPENSATION SYSTEM, THE INTRODUCTION OF NEW CONTRACTUAL MODELS AIMED AT CONTROLLING COSTS IN ORDER TO REDUCE PREMIUMS AND MAKING SWITCHING INSURANCE COMPANIES EASIER BY INTRODUCING SIMPLE COMPARISON SYSTEMS AND REVIEWING THE MECHANISM OF INTERNAL RISK CATEGORIES.

More expensive insurance policies in Italy than in other European countries, more accidents but fewer cases of fraud detected. Compensation costs higher, too. Pensioners, young people and forty-year-olds the most heavily penalised.

Modify the system of direct compensation by introducing mechanisms to encourage cost control on the part of insurance companies, to regain efficiency and pass the benefits on to consumers in the form of lower premiums. In addition, provide for new contractual models which, on condition that insured parties are guaranteed significant discounts, allow a reduction in costs by developing specific forms of compensation or by invoice. These are just some of the proposals put forward by the Antitrust Authority on concluding its fact-finding investigation into third-party vehicle insurance, decided on February 06^th this year and aimed at making compulsory insurance policies less expensive for motorists.

The Authority also recommends solutions for making switching insurance company easier, by reviewing the mechanism of internal risk categories and implementing vehicle insurance estimate calculators which help consumers to choose the cheapest policy.

POSSIBLE ACTIONS

The investigation, which was conducted on a representation sample of 82% of the market and of policies actually paid, confirms a number of critical aspects relating to competition which are reflected, on the one hand, in uncompetitive levels, growth rates and variability of premiums, and on the other in compensation structures imposed on insurance companies which are inefficient in terms of productivity, themselves in turn characteristic of a non-competitive equilibrium. The introduction of the direct compensation procedure in 2007 does not appear to have interrupted this vicious circle.

The most recent changes in regulations, which represent a step in the right direction, need to be fine-tuned still further, in addition to being correctly implemented and carefully monitored. The recommendations of the Antitrust Authority include:

a)    Reimbursement to companies who pay out claims to their customers as the injured party should take place as it does now through the clearing mechanism, on the basis of a lump sum established in accordance with procedures currently in place, yet reduced by a percentage (termed the “efficiency recovery” mechanism). Thus the amounts paid out by insurance companies to each other for damage or injury caused by motorists insured by them would see a gradual reduction. This would be achieved by introducing a “cap” on the lump sum, thus modifying the current reimbursement system based merely on insurance companies’ historic costs of compensation. This would introduce an incentive for insurance companies to control and limit their costs (which are in part the result of fraud).

b)    Contractual models should be adopted which increase insurance companies’ capacity to control the amounts of compensation that they pay out while at the same time providing insured parties with more opportunity to select their insurer independently. The insurance regulator would have to work so as to introduce optional clauses for the insured party alongside fair discounts on premiums (for example specific forms of compensation, such as repairs carried out by auto repair shops affiliated with the insurance company or health and medical services provide by professionals chosen and paid by insurance companies). “Black boxes”, too, should be installed at a significant discount.

c)     On the cost side, all elements of uncertainty regarding permanent microlesions must be eliminated by making only those detected by diagnostic procedures indemnifiable. In addition, it must also be possible for the insurer of the responsible party to inspect vehicles damaged in accidents under the CARD (Convenzione tra gli Assicuratori per il Risarcimento Diretto or Agreement Between Insurance Companies Concerning Direct Compensation) system.

d)    Certainty and clarity must be introduced with regard to internal risk categories, ensuring that the “new” insurance company, in the event of the insured party changing insurance company, does not assign a lower risk category than the one it would apply to one of its own customers with the same risk characteristics.

e)    The development of new, effective online tools for comparing a broad range of third-party vehicle insurance policy premiums should be encouraged. It should be straightforward and immediate and use appropriate graphical icons to specify the main exclusions and limitations associated with each offer.

PREMIUMS IN ITALY DOUBLE THOSE IN FRANCE AND PORTUGAL

The investigation confirms that third-party vehicle insurance premiums in Italy are higher and increasing more quickly than those in the main European countries: the average premium is double those in France and Portugal, around 80% higher than in Germany and almost 70% higher than in the Netherlands. The increase in insurance prices from 2006-2010 was almost double the Eurozone average and almost three times the increase recorded in France.

At the same time Italy is characterised by the frequency of claims and the highest average cost of all the major European countries: specifically, the frequency of claims is almost double that in France and the Netherlands and exceeds the frequency in Germany by about 30%; the average cost of claims in Italy exceeds their cost in France by around 13%, in Germany by over 20% and is over double that in Portugal. Nevertheless, the number of frauds detected against insurance companies in Italy is four times lower than in the United Kingdom and half the number in France.

PENSIONERS, YOUNG PEOPLE AND FORTY-YEAR-OLDS THE MOST PENALISED

The analysis conducted as part of the investigation on actual policies confirmed that sharp increases had taken place following the introduction of direct compensation. This analysis was conducted on seven different hypothetical profiles of insured parties, each with different risk characteristics. Each insurance company was asked to provide information regarding premiums actually paid for each profile in each of the thirty provinces analysed. Third-party vehicle insurance premiums rose over the period analysed (2007-2010) at significantly high rates for almost all insurance profiles and in most of the provinces considered by the investigation, for both men and women. Pensioners with small cars, young people with mopeds and forty-year-olds with motorcycles are the insurance categories for whom premiums increased in most of the provinces included in the sample analysed. For example, average annual increases in third-party vehicle insurance premiums reached 20% a year between 2007 and 2010 for a new driver with a small car, 16% a year for a forty-year-old with a mid-sized car, 9-12% a year for a (male or female) pensioner with a small car, 12-14% a year for a (male or female) eighteen-year-old driver with a moped and over 30% a year for a forty-year-old (male or female) motorcyclist. The provinces which saw the largest increases are mostly in Southern and Central Italy; these provinces are characterised, in fact, by a larger rise in premiums than Northern Italy.

CHANGING INSURANCE COMPANY IS DIFFICULT

The rate of mobility between one insurance company and another, which constitutes one of the “weapons” available to consumers for stimulating competition, remains low in practice, at around 10 percent: in the period from 2007-2010 only online insurance companies, which in any case account for just 5% of the market, were characterised by greater mobility in terms of new customers (16-18%) compared with traditional insurance companies.

Yet the investigation highlighted extreme variability in premiums: on the market it is thus possible for consumers to find cheaper policies, on condition that they possess the right instruments for finding them. Expenditure on third-party vehicle insurance by each profile of consumer may even vary considerably within their province of residence. Specifically, using the variation coefficient, expenditure on third-part vehicle insurance varies by around 20-30% for a significant number of insurance profiles for both men and women.

Nevertheless, consumers are unable to benefit from these options as tools for obtaining information about and comparing the various policies available are complicated and there has been no growth in the area of  independent insurance agents (i.e. agents authorised to represent several companies). In addition, the peculiar structure of internal risk categories and of the rules that insurance companies have adopted has a negative impact on the mobility of insured parties: consumers who change insurance companies are placed in internal risk categories which are less advantageous than those applied by the insurance company that they leave.

INADEQUATE DISCOUNTS FOR CONSUMERS WHO INSTALL THE “BLACK BOX” OR WHO CHOOSE COMPENSATION IN SPECIFIC FORMS

Both the trend in the frequency of claims and the trend in the (average) cost of trends, which together determine the cost of paying out claims, are increasing: the frequency of claims in Italy increased every year following the introduction of the direct compensation procedure, with the exception of 2010. Between 2008 and 2010, the increase in the average cost of claims was 12.4% under the CARD (Convenzione tra gli Assicuratori per il Risarcimento Diretto or Agreement Between Insurance Companies Concerning Direct Compensation) system and 28.1% for “non-CARD” claims. In addition, insurance companies have not taken advantage of the potential which the CARD procedure offers in terms of controlling the cost of claims in a more effective manner: discounts offered to motorists based on clauses concerning “specific forms of compensation” did not exceed 5% of the cost of the premium, while the number of contracts containing such clauses did not exceed 6% of the total.

Insurance companies have not encouraged the use of the so-called “black box” either: installation charges payable by consumers are higher than the discounts offered by the companies, with the result that the number of contracts containing “black box” clauses still do not exceed 3% of the total.

Rome, 22^nd February 2013