Recent research shows that car insurance in Italy costs five times the European average, underinsurance is rife and the government is scaling back on its intervention. Liz Booth investigates whether there are any opportunities for foreign insurers.
With Italian motor insurance costing five times the European average, it was a little surprising that a recent Swiss Re report suggested that there are still plenty of opportunities for the insurance market to make money. Caught up on the fringes of the Eurozone crisis, the Italian government has been scaling back in terms of social provision, and Swiss Re believes that Italy stands at a crossroads in terms of economic and social change.
Carlo Coletta, market head of Italy for Swiss Re, sums it up. “Given the historical role of the government in providing social benefits in Italy, its scaling down is expected to have an expansive effect on the primary insurance market as more individuals seek to fill the resulting growing protection gap using private solutions,” he says.
“Furthermore, Italy is underinsured compared to its European peers in protection, pension and healthcare products and, therefore, the starting point is well below that of its neighbouring countries.
“Adding in the below-average insurance penetration in non-motor property and casualty, and the very high levels of private wealth, most players would agree that Italy offers tremendous growth opportunities, even though major swings have yet to be seen.”
“Scaling down is expected to have an expansive effect on the primary insurance market as more individuals seek to fill the resulting growing protection gap using private solutions.” Coletta
However, the motor market reflects many of the challenges any prospective insurer would face in entering the market.
As Coletta acknowledges: “Motor prices are high and rising as a direct result of the loss ratio, particularly in the third-party liability component.
“Among the main reasons are the ever increasing costs of micro-permanent damages, which aren’t covered in most other countries.
“Italy has the highest number of bodily injury claims in Europe. In the past few years there has been a reduction in the overall combined ratio of motor TPL. As of 2011 it was still above 100%, although it is expected to be under 100% in 2012.”
Massimiliano Banfi, sales director at Willis Italia, agrees. “In Italy, the frequency of TPL claims with responsibility is very high, even if the trend is positive. The frequency is still very high (6.5%), second only to Spain (9.3%),” he says.
“The average cost per claim is €4,337, the highest in Europe. Germany has an average cost of €3,505, €3,308 in France and €1,729 in Spain.
“The main cause is the incidence of accidents with body injuries, which is very high (22.7%). The result is that the ‘pure technical premium’ in Italy is 58% higher than in Germany, 108% higher than in Spain and 128% higher than in France.”
“In Italy, the frequency of TPL claims with responsibility is very high, even if the trend is positive.” Banfi
Paolo Golinucci, of broker Golinucci, adds: “It is also about the different economic value of a claim in European countries.
“For example, the death of a young man (22 years old) in a car crash has an estimated claim value of €1m in Italy, €200,000 in Austria or €20,000 in Germany because of the differing laws.”
The Italian authorities are trying to deal with the problem, introducing new rules covering smaller claims obliging the insured to produce documentary evidence to support such claims.
This brings Golinucci to the subject of fraud, saying that some 50% of motorists drive without original policies.
Coletta agrees, but warns: “It is still early to gauge the full effect of anti-fraud measures implemented nationally, but there has been a healthy downwards trend of loss ratio.
“The recently introduced more stringent scrutiny of whiplash claims is expected to have a noticeable effect on small claims frequency going forward.”
Golinucci adds: “As part of the measures to combat fraud, discounts are being introduced for policyholders who agree to submit to a vehicle inspection by the insurance company, loss adjuster or surveyor.
“This discount will increase if the insured installs a telematics device. The costs for the device will be borne by the insurance company. The amount of the specific discount will be at the discretion of the individual insurance company.”
“Discounts are being introduced for policyholders who agree to submit to a vehicle inspection.” Golinucci
End of paper
On top of this, Golinucci adds that the government has proposed ending the practice of displaying a paper insurance disk on the vehicle windscreen of the car.
“Nearly 7% of the vehicles in Italy, an estimated 3.5 million, are uninsured,” he explains.
Electronic systems linked to databases are proposed to be introduced within two years. Any violation will be detected by traffic control equipment and documented by cameras and video recording.
Golinucci says that the Italian association ISVAP’s figures in 2009 showed that false claims accounted for €414m, compared with £1.9bn estimated by the Insurance Fraud Bureau in the UK.
In a bid to publicise the scale of the problem, each insurer will have to report annually to ISVAP the number of fraudulent claims, declarations submitted to the judicial authorities and any internal measures to counter fraud.
The direction is the right one, according to Banfi. “The creation of a unique database to share all the information about claims and the use of technology will surely help to tackle fraud,” he says.
“In addition, the dematerialisation of insurance certificates will help to lower the number of uninsured vehicles, which is increasing due to the economic crisis. It is a long road, but measures introduced are very clear and effective.”
Competition is helping to keep costs down for some drivers. “Direct insurers are growing because they’re able to offer competitive conditions for specific risk profiles. 34% of Italians have chosen a direct company in the past 36 months,” Banfi says.
This is making it more attractive to new entrants. “Some new players have entered or are entering the Italian market with a particular focus on large fleets and/or specific sectors where the local insurance market is very hard or completely closed,” he adds.
Coletta explains that pricing is accepted. “Consumers have generally accepted current premiums as the reality of the marketplace. Consumer complaints regarding pricing are tracked by local insurance regulators and companies are aware of consumer feelings towards them,” he says.
“Consumers have generally accepted current premiums as the reality of the marketplace.” Coletta
Across the board, according to Coletta, certain lines of business have seen increased demand lately owing to new mandates requiring coverage, such as professional liability, or supply gaps owing to lack of competitive interest in the market, such as medical malpractice, as result of heavy losses suffered in recent years.
Natural catastrophes, too, play a part. As Coletta says, following the recent earthquakes, “demand has, as can be expected, gone up”.
“However, the increased demand has not been linear across the country. Barring possible future government intervention, in terms of either promoting private coverage or making it compulsory, we do not expect major changes in the immediate future,” he adds.
Overall, all commentators believe that Italy remains an attractive option for foreign insurers.
Coletta sums it up: “Italy has always been attractive, as seen by the many multinational companies writing business locally or through the London market.
“That said, many multinational insurers tend to be niche players, focusing on specific lines of business rather than broader personal lines.
“Foreign insurers’ market presence may increase as opportunities present themselves due to the scaling down of governmental intervention.”