On 12 August 2022, Law No. 118 of 5 August 2022 (the annual market and competition law - the "Law") was published on the Italian official Gazette.

Article 31 of the Law introduces amendments to the rules on direct compensation for motor liability insurance (so-called CARD system) under Article 150 of Legislative Decree No. 209/2005 (the Italian Insurance Code).

In particular, the Law replaces paragraph 2 of Article 150 of the Italian Insurance Code providing that the provisions governing the procedure on direct compensation provided under Article 149 of the same shall also apply to EU insurance companies operating in Italy under right of establishment or freedom to provide services.

In its previous wording, Article 150(2) of the Italian Insurance Code generally excluded the application of the direct compensation procedure to EU insurance companies operating in Italy, unless they had voluntarily joined the direct compensation system.

The direct compensation procedure entails that in the event of an accident between two identified motor vehicles insured for compulsory motor liability, where damage is caused to the vehicles involved or their drivers, the injured parties shall address the claim to their respective insurance company (i.e. the one that issued the contract for the vehicle used). Thus, following the submission of the claim for direct compensation, the insurance company is required to settle damages on behalf of the insurance company of the vehicle responsible for the accident, without prejudice to the subsequent adjustment of relations between the companies themselves.

Based on the explanatory report to the Law, the abovementioned amendment is aimed at eliminating potential discriminatory treatment to the detriment of Italian companies compared to companies with registered offices in other member States. In fact, EU companies were deemed to enjoy an unjustified advantage in that, since they were not obliged to provide direct compensation, they had more opportunities to charge lower rates.

In the context of the examination of the Law by the Italian Parliament, a number of subjects, including the Italian association of insurance companies (ANIA), were heard in order to render their opinion on the provisions provided under the Law. As far as the provision at hand is concerned, ANIA clarified that while understanding the rationale of the rule, it should nevertheless be taken into consideration that an appropriate deadline be provided with respect to the implementation of the obligation that was to be introduced, since a number of actions must be carried out by foreign insurance undertakings.

As a result, a transitional provision was introduced under the Law in the context of the examination of the same by the Italian Parliament, which now provides that the new regime will enter into force on 1 January 2023 and shall apply for claims with occurrence as from that date.

Therefore, within the end of the year EU insurance companies operating in Italy on a right of establishment or freedom to provide services basis which have not yet voluntarily joined the CARD system will have to:

• adapt the clauses of motor liability insurance contracts and the related set of pre-contractual and contractual information documents for policyholders and notify policyholders of any changes in the information contained in the policy general terms and conditions and in the Informative Set in general as a result of the new provision introduced by the Law;

• change the business processes of risk assessment and pricing and distribution of insurance products;

• modify the business processes of claims settlement, consistent with the fulfilments provided under the implementing regulation of direct compensation (i.e. Presidential Decree No. 254 of 18 July 2006 and the Inter-Insurer Agreement for Direct Compensation stipulated pursuant to said Presidential Decree);

• update the respective IT procedures for the management of communication flows with CONSAP- Clearing House Management and ANIA for the management of CARD claims, whose system operates under the supervision of IVASS.