Insurance coverage in Italy
(By Associazione Consumatori Piemonte )

“Italian legislation, law and problems about insurance and civil liability”

Summary
1. Italian law about insurance contracts covering liability – the civil code
2. Compulsory insurance for the circulation of vehicles – what if a car accident happens?
3. Law and reality – a hard match in a not-so-free market
4. Problem solving attempts and everlasting issues – the last years

1. Italian law about insurance contracts covering liability – the civil code. In Italy, just like in so many other modern countries, insurance of risks has been developing more and more since Lloyds’ opened their first office in London centuries ago.
Nowadays, corporations, firms and professionals use to protect themselves from enterprise risks by signing insurance contracts with an ease it was quite unpredictable when England ruled the waves and the globalization process was just beginning thanks to a small number of iron men on board of their wooden ships.
But now, also private citizens, not directly envolved in any commerce or industry, are often called to sign insurance contracts. It’s a long time now we’re used to call them “consumers”. And it’s the hard reality of “consumers” of insurance services we are called to examine here and now, Italy the year of the Lord 2004.
According to the italian law system, insurance is a contract, regulated by the civil code. The napoleonic idea of a separate code of commerce is no more existing since 1942, when all the rules of the 1865 code of commerce were included in the new civil code approved that year, in wartime. In this new-coined melting pot, the entire category of “commercial contracts”, those contracts which were thought to be typical of enterprises and professionals, disappeared. It was time now for everyone to have access to all typical contracts regulated by law, and among these the insurance contract. As usual, anyway, society had been going forward long before, and the new law was just recognizing the state of fact. Fires, thefts, car accidents were risks even a private, if wealthy enough of course, would be gladly willing to think about before their possible unlucky realization. Insurance covering was the ideal solution. In the same years, the idea of an insurance compulsory by law for specific risks threatening in a particular strong way the ordinate development of a modern society, was already beeing given birth. In 1933 the totalitarian government created the I.N.A.I.L., the powerful public insurance covering work accidents. Enterprises were forced to declare to the Institute the number and names of all their workers and employees, and to contribute to its funds in proportion of the wages and salaries they were paying to them (not without the contribution of the workers themselves).
So, when the new civil code was enforced in 1942, the principles and rules regulating the insurance typical contract were consolidated well enough. Well enough indeed, considering how little the new law articles have changed in more than 60 years of use. But, and we shall see, the terrific changes in italian society could not pass over without an influence – and what influence! – on the insurance market. Legislation and law have been severely changing of course; but not so much have the main principles been touched as new specific laws have been enacted to regulate new aspects of the reality it was uneasy to foresee in the new civil code days.
Let’s then see without delay what lawyers and citizens can still read in the civil code, at articles 1882 and following, about insurance contracts. We’ll contain our inquiry in the limits of insurances covering damages provoked by an accident realizing a risk. Italian law disciplines a second kind of insurances, those paying a prize or a sum in case of an event “related to human life”, such as the death of a parent. So, articles of interest for our purpose end at number 1918; a first part, until article 1903, is unique for the two kinds of insurance, while articles since 1904 till 1918 specifically regulate insurance covering damages.
Art. 1882 provides a general definition of insurance contracts, which have a typically gambling nature. The insurance company will make a gamble about a possible accident involving the contractor: if the accident will have place, the insurance will loose the gamble and will have to pay a sum of money. If not, the insurance will win and will retain the (generally much lesser) sum of money that the contractor will have given to it.
Anyway, given that the idea of insurance is not the same of a simple gamble, and that anyway the State is just not willing to encourage gambling, many other norms are thought to strongly limit the gambling side of the coin. But what’s the other side then, the encouraged one? Of course, it is the transfer of risk to a stronger subject. The possible accident is not an event like another: is a misfortune realizing a specific risk involving directly the contractor (or a third person in favour of whom the insurance is stipulated: artt. 1890 and 1891 civil code).
So, the insurance company has to be a strong one, for two reasons: it’s the gambling side, and therefore it has to easily survive even to strong losses; it’s a subject which will take risks by default, and it will be having a particularly articulated structure to evaluate the probability of realization of risks. Art. 1883 provides that insurance companies have to be share corporations or public bodies, and more specific provisions are written in other laws which specify that it’s the government who authorizes insurance companies given some specific pre-requisites such as a very strong asset, similar to banks.
The insurance contract has to be written in order to bring evidence of it in court (art. 1888 civil code). This should avoid undercover agreements possibly transforming the insurance in a gamble.
The contractor has to tell the truth to the insurance companies about facts influencing the risk; if not, the contract can be void or anyway the company can withdraw from it (artt. 1892 and 1893 civile code; see also article 1906). If it wouldn’t so, the contractor could easily make unfair gambles and obstacle the insurance company in its efforts of calculate the risk realizing probabilities (and therefore the correct price to ask in order to take the risk on itself). For the same reason, the contractor has to inform the insurance company of any fact which makes the risk easier to realize (art. 1898 civil code).
The contract cannot last for more than ten years without providing the right to withdraw for both parties after this term (art. 1899 civil code). This is because otherwise it would became too hard for the insurance company to calculate the risk probability of realizing, making the contract quite nearer to a simple gamble.
If the accident is provoked by the contractor itself, the insurance won’t pay in case of accidents deriving either by will or even by fault, but in this case the fault has to be serious (art. 1900 of the civil code).
A similar principle is involved by articles 1913, 1914 and 1915: the contractor can’t avoid to act to limit damages. It would be like partially provoke the accident and therefore it’s not allowed for evident reasons. To act to limit damages implies at first instance to immediately give advice to the insurance company of the accident which happened (the term is fixed by law in just three days).
A partial limitation to this principle is article 1918, allowing the fundamental insurance against risks deriving by civil liability of the contractor himself. We’ll examine more deeply this kind of insurance, because it’s the one of main interest for private citizens in modern society, in the field of civil liability deriving from car accidents. Anyway, even if here is the action of the contractor to determine the event foreseed by the insurance contract, purposeful actions are excluded.
A main principle relating for insurance contracts covering risks is provided by article 1905 of the civil code: the insurance company is just liable in the limits of the damage suffered by the contractor: no enrichment is allowed by law, or the insurance would become a true gamble. This is true whatsoever the price payed by the contractor; on the contrary, is well allowed (and practised) to determine in the contract the maximum sum the insurance company will refund, depending on the price payed and notwithstanding the effective damage suffered. The same principle finds specifications in articles 1908, 1909, 1910 and 1911 of the civil code: if the object of the insurance is a tangible good the liability of the insurance company is in any case limited by the real original value of the good itself; moreover, if the same good is the object of more than one insurance contract, in any case the total sum perceived by the contractor won’t exceed the value of the good itself.
In every case where a third part is liable for damages either on a contractual or on a tort basis, the insurance company is allowed to ask for them in its own favour directly to the third part (article 1916 of the civil code). In this way the insurance company will take on itself the risks of an action at law against the responsible but the general principles of liability won’t be touched.
These are the main rules provided by the civil code: general ones, as usual, but implying strong and solid principles, still untouched after more than sixty years. It’s when we enter in details that we can observe the real life of modern society and insurance contracts against risks directed to private consumers.

2. Compulsory insurance for the circulation of vehicles – what if a car accident happens?
Most important among all types of insurance contracts a private citizen signs normally, are contracts covering risks related to the civil liability car drivers are subjected to. Car driving has become a popular way of traveling in Italy in the fiftees and even more in the sixtees. Nowadays, the rate of car per inhabitant is one of the higher even in civilized countries, supported by a public policy encouraging the private transport against the public one (strong public investments in highways and roads and stagnation in railway development is a leit-motiv of italian transports politics in last decades).
So, the number of car accidents has fastly risen higher than ever. Social problems, and costs, deriving from this new risk have produced a huge amount of dedicated legislation: norms about driving safety, of course (by the way, European Union has encouraged a strong process of uniformation in this field), but also norms about insurance covering civil liability deriving from car accidents, determining it as a new type of compulsory insurance, and the first one involving private citizens notwithstanding their professional activity. But why to compel drivers to sign an insurance contract covering their liability in case of accidents? About this issue there are two schools of thnking. According to the first one, every increase in insurance contracts for civil liability would determine an increase in negligence: knowing that the insurance would pay for them would encourage people to be careless about their own conduct. According to the second one, to be unprotected from legal consequences of their own faults have not enough significant meanings to people’s behaviour, while social consequences for people involved in car accidents would be far worse if they couldn’t afford on a sure compensation.
The latter of these ideas has prevailed, in Italy as everywhere else. Market practises found even a way to partially guarantee that the private maintains his own interest in a careful driving: the “bonus-malus” contract scheme, according to whom every year without accidents caused by fault lowers the price to pay for the following year, while on the contrary every accident for which the driver and his insurance are liable rises up the amount to pay. Even if the “bonus-malus” formula is not compulsory, and a driver is allowed to ask for a contract where the price is fixed, such a contract is so more expensive that very fewpeople even think about such a solution.
So, insurance for civil liability deriving from car accidents became compulsory, and nowadays a vehicle is not allowed to run on public roads if an insurance contract has not been signed for it. The insurance has to cover both damages to things and to persons, until a fixed minimum amount. There’s a specific Act regulating the matter, outside of the driving code, which is the Law number 990 of April 29th 1969, later partially modified by Law number 54 of February 26th 1977 and Legislative Decree number 173 of May 26th 1997. Article 1 establishes the principle of compulsority on an individual vehicle – insurance basis. In this way, each vehicle is covered by insurance notwithstanding who’s the person driving, and even if he’s driving against thw owner’s will. When the contract is signed, the insurance company has to give to the contractor a certificate and a mark, which he’s compelled to keep inside the vehicle and to show attached to the front-window (article 7 law 990/1969). On the certificate and the mark is indicated the date of expiry of the insurance, so that it’s always easy to determine if a particular vehicle is allowed to run or not.
According with the specific goals insurance for risks related to driving has to meet (certainty, speedness and easiness of refunding proceeding, above all), law number 990/1969 provides many rules which differ in relevant aspects from the civil code. One of the most important is provided by article 18, according to whom the third part who suffered the consequences can ask for refunding directly to the insurance company, while according to general principles of civil law this should be liable, in force of the contract signed, just towards the contractor. Moreover, the insurance company has to pay to the third part even in cases where its own contractual liability towards its client is limited by the agreement (in limits fixed by law) in boundaries more narrow than the tort liability of its client towards the third part. In such cases, the insurance company will have of course an action at law for redress against its client.
But what in cases where a car accident is caused by a vehicle which is not covered by insurance, or which succesfully escapes and couldn’t be identified, or even which is covered by an insurance which goes bankrupt? Articles 19-21 provide for the creation of a guarantee fund, which covers the most important of these cases (deadly accidents, or accidents where a person suffers a relevant permanent or a long temporary physical damage). According to article 31, the fund is constituted with a percentage amount from each single insurane contract for civil liability from driving accidents signed. So, every authorized insurance company contributes to the fund, and has to run it on a turnary basis of three years. According to article 29, the insurance company that happens to run the fund has an action at law for redress against the responsible of the accident not covered by the insurance or unidentified or against the insurance company involved in the bankruptcy proceeding.
Articles 22-26 of law 990/1969 regulate the refunding proceeding and its eventual judicial phase. In order to avoid unnecessary judicial proceedings, an action can be suited only after a formal request for refunding is sent to the insurance company and sixty days have passed since its receiving (article 22). Article 23 provides for the necessary involvement, in the judicial proceeding enacted by the third part against the insurance company, of the direct civil liable person whose liability is covered by the insurance. Finally, article 24 allows the judge to assign a provisional sum to the damaged person who alleges and proves to be in a state of urgent need.
These rules were surely a strong progress for all people involved in a car accident, and nowadays it’s uncontested that the compulsoriness of the insurance for civil liability deriving from car accidents it’s absolutely necessary in modern italian society. Even so, many problems have arisen as long as the circulation of vehicles has been increasing more and more until today, with strong consequences even on the number of accidents.

3. Law and reality – a hard match in a not-so-free market.
Let’s see now what’s been revealing to be wrong about compulsory insurance for damages originated by the circulation of vehicles. It’s always difficult to tell who’s to blame for having been the first to break social unexpressed agreements, and it’s just such the case of the relation between insurance companies and private consumers. Anyway, the reality of such a relation today is particularly bad, and we still have to examine the situation starting from one of the two sides to end with the other. So, one thing to notice is that many accidents, in Italy at least, have been meant also many false accidents, that’s to say many frauds against insurances. At a lesser level, real accidents have too often been the startpoint for asking a refund higher than the correct one. This state of things, from insurance companies’ point of view, makes this branch of insurance unprofitable in comparison with other ones. Italian national association of insurance companies (A.N.I.A.) has always been blaming smaller and bigger frauds to justify hostility from companies’ side in recovering damages. Such an hostility has been long time beeing revealed by neverending paying procedures more than by effective controls, with the result of damaging more the unprepared and honest people in a need than the true fraudsters. Moreover, there was the prices issue.
Prices have for a long time been regulated indirectly by law, due to the public relevance the whole market sector had assumed with law 990/1969. During the seventees and the eightees insurance companies contracted with governments asking for increases; by law, they couldn’t refuse to sign a contract if asked by a car owner, and they were complaining about heavy losses they were suffering, with possible sideeffects on all the insurance market and therefore on the national economy. Insurance companies, as banks, were huge investors in national industry and it has always been easy for them to threaten heavy retreats. So, governments that followed were usually agreeing with companies’ requests, and prices rised up, helped also by the general price rising of those two decades. Time passing, anyway, free market instances gained this sector too. European Union policies preparing and following 1992 Maastricht Treaty strongly supported free market in every sector of member countries’ economy. About insurances, italian market was still strongly closed in itself, and it was quite uneasy for a foreign corporation to have access and make offers to italian consumers. Anyway, the blocked prices system, with the government determining them according to law general principles and unformal confrontation with insurance (national) companies, was something of most different from European Union goals. It was soon clear that the system would have to be completely changed, and that prices liberalization would be a necessary step to unify european insurance market. They were times of enthusiasm. Everything looked fine; it was said that liberalization would have produced a lowering in prices, arguing that free market and true competition among italian and new, foreign, corporations would have good side-effects for individual consumers too. It was not so long true that, where a service has to be compulsory for people, its price had to be controlled by government.
But things went in a different way. In the ninetees, all big corporations rised up their prices as it was never been happening before, in the regulated market system. The reasons declared by corporations and A.N.I.A. were always the same: the unprofitability of the market due to the high rate of accidents and of big and small frauds. In the specific, but most important, case of accidents with small physical damages to people, it was also blamed the italian physicians attitude of recognizing quite always a small permanent damage (inability of 1 – 3%), which of course increased a lot refunding costs. Moreover, for a long time there was a strong uncertainty about how to calculate the amount of money necessary to refund physical damages, and it soon flourished a complex judge-made law which contributed to increase the litigation rate. On the other side, it was noticed that misorganizations were over-present in insurance companies and specifically in offices related to civil liability for car accidents, and that this was a most important basis for high prices. Quite like it is usual in italian public offices, lack of technology and excess in employees number (and wages) were present in italian insurance companies as well. A role was played also by the high profits guaranteed for external people and professionals working in some way with car accidents (physicians, lawyers, car repairers and value experts). But even this was not enough to fully explain the incredible price-rising. Suspicions of a black agreement among all the main insurance companies against the realization of a truly free market and for keeping profits higher than normal were being growing at the same rate of the prices themselves.
Soon prices became higher than everywhere else in Europe; insurance companies told that even this was due to the particularly high number of accidents and frauds in Italy. Refunding procedures remained exaustingly long, though. Without a lawyer asking for a formal answer and threatening a lawsuit at the same time, even simple cases continued to be waiting for redress months or even years. Lawsuits continued to be often necessary even when it shouldn’t be so, and at their turn were long and expensive. When a physical damage to persons was present, it was frequent to intent a criminal lawsuit against the driver to make haste to the insurance company, but directly threatening the contractor with a possible criminal conviction, thus partially vanifying the specific purpose of all the insurance system. Moreover, it proved to be especially difficult to get a prompt and effective redress from the guarantee fund, run carelessly by the turnary insurance company, even in cases where it was mostly needed.
As the century was ending, it was clear to everyone at least that the situation was critical. It was now the time for public authorities to intervene once again, even if in the new context of a “free market” system in an open european context.

4. Problem solving attempts and everlasting issues – the last years
The situation of prices in insurance contracts, with the turning of the new century, was getting worse and worse for private consumers. In comparison with the regulated market system, there were now many more kinds of offers: prices could now be different not only on an individual “bonus-malus” basis, but also in relation to the age and gender of the contractor (with females being favoured as more careful drivers than men) and to the region of provenience. Moreover, some foreign big company had been entering the market and a totally new category of “low-cost” companies had risen: the so-called “telephone-companies”, which cut down costs erasing the necessity to refer to a traditional office, with walls, structures and employees. Now it was possible to have relation with one’s own insurance company just by phone, or e-mail.
Even so, quite unpredictably, the effective rate of annual price increase in the two years 2000 and 2001 was comprised between 50% and 120% more than the year before! And this followed a period of increase, not one of stagnation. In 1999, the D’Alema government reacted to the heavy rise of insurance prices by stopping by decree every increment for the following year. This kind of decision, criticized as a late example of regulated market system, did not help anyway: the year after the increase was even higher than before...
It was not until long time after than national anti-trust Authority for free market opened a inquiry about the whole sector. The results confirmed the worse suspicions. It was discovered the existence of a data-base, shared among all the main insurance groups, used to determine prices in a uniform and pre-determined way. Heavy sanctions hit all the companies, and the judicial proceeding following the appeal submitted by them confirmed the determinations of the Authority.
In the same years, a new law was enacted by Parliament, trying to regulate some other aspects of the matter. It was the law number 57 of March 5th 2001. Prices issue was regulated with a transparency-oriented style, respectful of the free market phylosophy. Insurance companies were now compelled to declare the prices applied for nine typologies of consumers and firms specified by article 1 (age, gender and type of car were the elements to be taken into consideration). These prices now had to be published and made visible to consumers in insurance agencies. Moreover, they now had to be comunicated in advance to the national authority of survey on insurances (I.S.V.A.P.) and to the national consumer council (C.N.C.U.). I.S.V.A.P. gained some more control power (article 2).
The new law was typically problem-solving oriented: specific norms handling with specific issues, no pretense of re-regulating the whole system. Besides the prices issue, the other question to solve was the exhausting lenghtness of the refunding proceeding. Article 3 guaranteed to the consumer the right to have access to the final acts of the proceeding, on the shape of what it was provided for proceedings of public bodies by law 241 of year 1990. Finally, article 5 fixed a term of sixty days to end the refunding proceeding in the simplest cases (no damages to persons, and demands presented filling a form attached to the law), or of ninety days since the receiving of the medical documents in cases of accidents with physical damages to persons. The issue of the determination of the amount of money due as a compensation for physical damages was for the first time solved by a public law, even if just for minor damages (up to 9% of permanent inability).
What now? The approach of law number 57 was a good one, but still partial. Moreover, problems of enforcement still make some of the new provisions uneffective, especially in southern areas and in big cities. And prices, even after the intervention of national anti-trust Authority, stay well higher of those applied in other european countries. Free market system is still undisputed, as it is compulsority of insurance for civil liability deriving by car accidents. Anyway, these two principle seem someway to be contradictory in themselves and compel public authorities to find out new ways to limit unefficiences. Free market, according to neo-classical economic theory, should be a solution in itself, and this is the european point of view. Free market, anyway, has often to be enforced by the State... this is another contradiction, but true as nothing else. Nowadays, free market enforcing policies in insurances pass through indipendent authorities (in Italy, anti-trust authority and I.S.V.A.P.), and the two elements necessary to effective enforcements are clear enough: resources and powers to find out violations and the power to commit effective sanctions. In both of these fields there’s still a long way to do.
Last but not least, an important role should be played by consumer associations. Their step is the first one: to notice and denounce possible violations, black agreements against free market and insurance companies unefficiences which contribute to make this crucial sector of economy one of the fullest of questions to solve. That’s shouldbe the starting point for the successive activity of independent authorities, too often shy in starting procedures of ascertainment by themselves whenever the public opinion has not already submitted the issue at the first page of the national agenda.