On 24 October 2022 the Italian insurance supervisory authority (“IVASS”) launched a public consultation on a document providing amendments and integrations to the following IVASS Regulations:
- IVASS Regulation No. 24 of 6 June 2016, laying down provisions on investments and assets covering technical provisions, resulting from the national implementation of the EIOPA guidelines on the corporate governance system, with particular reference to the prudent person principle in relation to investments (“Regulation 24”);
- IVASS Regulation No. 38 of 3 July 2018, laying down provisions on the corporate governance system, resulting from the national implementation of the EIOPA guidelines on the corporate governance system (“Regulation 38”);
- IVASS Regulation No. 40 of 2 August 2018, laying down provisions on insurance and reinsurance distribution (“Regulation 40”);
- IVASS Regulation No. 45 of 4 August 2020, laying down provisions on insurance product oversight and governance requirements (“Regulation 45”).
The proposed amendments and integrations aim at facilitating compliance with the directly applicable European provisions adopted in the field of sustainable finance, specifically those relating to the insurance sector, by intervening on the IVASS regulatory provisions affected by the new European legislation. More specifically, this intervention mainly concerns the IVASS regulatory provisions impacted by the amendments and integrations made at a EU level to the Solvency II framework (Delegated Regulation (EU) 2015/35, “Delegated Acts”) and to the delegated acts under the Insurance Distribution Directive (“IDD”) (Delegated Regulation 2017/2358 on product oversight and governance requirements for insurance undertakings and insurance distributors “POG Regulation”, and Delegated Regulation 2017/2359 on information requirements and conduct of business rules applicable to the distribution of insurance-based investment products “IBIPs Regulation”) and which are applicable as of 2 August 2022.
The general EU regulatory framework on sustainable finance
The European legislator introduced specific safeguards relating to the sustainability disclosure of financial products, with the aim of improving and standardising the disclosure requirements of sustainable investment-related information on the part of financial market participants and financial advisers and making disclosures comparable for end investors.
Moreover, the so called Taxonomy Regulation (Regulation (EU) 2020/852) sets out the criteria for determining whether an economic activity can be considered environmentally sustainable.
EU provisions on sustainable finance related to the insurance sector
The adoption of the new European legislation on sustainable finance specifically related to the insurance sector involved an alignment of, among others, the European provisions contained in the Solvency II framework and those on insurance distribution under the IDD.
In this regard, on 2 August 2021 the following regulations were published, which apply as from 2 August 2022: (i) Commission Delegated Regulation (EU) 2021/1256 of 21 April 2021 amending the Delegated Acts as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings and (ii) Commission Delegated Regulation (EU) 2021/1257 of 21 April 2021 amending the POG Regulation and the IBIPs Regulation as regards the integration of sustainability factors, risks and preferences into the product oversight and governance requirements for insurance undertakings and insurance distributors and into the rules on conduct and investment advice for insurance-based investment products.
Amendments to IVASS Regulations
The alignment of the IVASS regulations affected by the abovementioned European provisions in the field of sustainable finance relevant for the insurance sector is aimed at fostering consistency of application between the national regulations in force to date and the new European regulatory framework, so as to facilitate their implementation by market operators.
The main amendments and integrations are the following:
Amendments to Regulation 24
Regulation 24 would be amended in order to align it to the amendments and integrations made by Delegated Regulation (EU) 2021/1256 to the Delegated Acts, including the following:
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Introduction of the definitions of “sustainability factors”, “sustainability preferences” and “sustainability risks” in accordance with the EU legislation mentioned above;
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Insurance undertakings, in determining their policy on investments, shall also take sustainability risks into account in identifying, measuring, monitoring and managing the risks associated with each type of asset. The investment policy shall also take into account the potential long-term impact on sustainability factors and, where relevant, the sustainability preferences of the company's customers that have been assessed in the product approval process;
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Insurance undertakings, before carrying out any investment activity of an occasional nature, shall assess, among the other things, the impact of the investment on sustainability factors.
Amendments to Regulation 38
Regulation 38 would be amended in order to align it to the amendments and integrations made by Delegated Regulation (EU) 2021/1256 to the Delegated Acts, including the following:
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The risk management system shall include strategies, processes and procedures necessary to identify, measure, assess, monitor, manage and represent on an ongoing basis the current and expected risks to which the undertaking is or may be exposed, including sustainability risks; moreover, underwriting, reserving, reinsurance and other risk mitigation policies shall also take into account sustainability risks;
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In the context of the definition of the risk management policy and the choice of criteria and related methodologies for measuring risks, to which the risk management function contributes, sustainability risks, where relevant, shall be included;
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The actuarial function's opinion on the overall underwriting policy must also include, where relevant, the opinion on the potential impact of sustainability risks among the external risk factors that may affect the profitability of the business for the following financial year;
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Remuneration policies shall contain information on how they take into account the integration of sustainability risks in the risk management system;
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In the context of the remuneration policies of insurance and reinsurance intermediaries, undertakings shall take care to ensure that remuneration and inducements are also consistent with the integration of sustainability risks into the risk management system.
Amendments to Regulation 40
Regulation 40 would be amended to align it with the amendments and integrations made by Delegated Regulation (EU) 2021/1257 to the IBIPs Regulation, including the following:
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Introduction of the definitions of “sustainability factors”, “sustainability preferences” and “sustainability risks” in accordance with the EU legislation mentioned above;
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With respect to conflicts of interest, it is provided that distributors - who operate with the aim of obtaining the best possible result in relation to the policyholders' insurance objectives – shall also take into account their sustainability preferences, if any;
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With regard to pre-contractual information, the description of the risks associated with the product provided by the insurance intermediary and the insurance undertaking distributing IBIPs to the policyholder shall include sustainability risks, if any;
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With reference to the suitability assessment relating to the sale of IBIPs, the information on the investment objectives that intermediaries and insurance undertakings shall obtain from the policyholder or potential policyholder - prior to entering into an insurance proposal or contract – shall also include sustainability preferences, if any. When intermediaries and insurance undertakings provide advice in the context of distribution they shall adopt policies and procedures to ensure their understanding, in addition to the nature and characteristics of the IBIP they intend to distribute, also of any sustainability factors;
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The suitability statement provided by the intermediary and the insurance undertaking in the case of advice must also indicate whether the IBIP meets the policyholder's sustainability preferences, if any; where no IBIP meets the policyholder's or potential policyholder's sustainability preferences and the policyholder voluntarily decides to adjust his/her sustainability preferences for the conclusion of the contract, the suitability statement shall disclose this adjustment and the underlying reasons. Conversely, where the policyholder or potential policyholder has not adapted his/her sustainability preferences, insurance intermediaries and undertakings providing advice shall explain to the latter the reasons why the suitability statement cannot be provided and shall keep the relevant documentation.
Amendments to Regulation 45
Regulation 45 would be amended in order to align it with the amendments and integrations made by Delegated Regulation (EU) 2021/1257 to the POG Regulation, including the following:
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When defining the target market, manufacturers must also consider, among the other things, sustainability objectives of customers if any. Manufacturers are not required to carry out the negative target market definition with respect to products considering sustainability factors;
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Manufacturers, when assessing the costs and charges to be applied to the insurance product, shall also consider that their amount is also compatible with the objectives of the target market related to sustainability, if any;
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Insurance intermediaries that distribute products marketed in Italy by EU insurance undertakings operating under the right of establishment or the freedom to provide services, shall adopt the necessary safeguards to ensure that insurance products are distributed in accordance also with any objectives related to the sustainability of the actual target market identified.
Next steps
The public consultation will be open until 23 December 2022. Following the public consultation phase, the comments received and the resulting IVASS resolutions will be made public on the IVASS website.
Authored by Silvia Lolli and Davide Valloni.
