Post Europe: Legal opportunities in Italy

Back in the early 1920s, Italy was one of the first countries to offer legal expenses insurance, after France and Germany.

It now ranks eighth in the European league with a gross written premium of €300m and steady, if unspectacular growth that hovered just above 3% until 2008, before declining in line with the overall insurance market on the Italian peninsula. This contrasts with the British GWP figure currently estimated at around €800m, including after-the-event cover.

Motor origins
The origins of LEI are firmly linked to the rise in popularity and ownership of the private motor car and the need for an insurance product to protect the driver against disputes. However, the early market in Italy reflected the less unified regional states of the country. The first two companies were established in the northern cities of Milan (pictured) and Modena. Arag was the third company to enter the market.

It was established in Rome in 1963 but moved north to Verona just two years later as the company recognised that the tourist route to Modena was extremely popular with travellers from Germany, who entered the country via the Brenner Pass.

"However, the early market in Italy reflected the less unified regional states of the country."

German strength
The motor products were, therefore, aimed specifically at these German drivers and then later at the businesses they and their compatriots established in the province of Verona.

The area had a very high density of German citizens and the local economy was flourishing. It made sound business sense to concentrate on this ex-patriot community, well used to LEI, capitalising on the market potential and more effectively servicing the claims locally.

Ideal bridgehead
The strategy provided the ideal bridgehead to break into the Italian market where legal protection remained a very little known product with almost no penetration into the mainstream Italian insurance market.

Today there are some 80 companies in Italy authorised to sell LEI, though only six are dedicated to providing solely this class of business. Overall, LEI represents just 0.25% of the total non-Life market.

"The strategy provided the ideal bridgehead to break into the Italian market."

Recession-proof
However, legal protection is now regarded as a mature product in a sector that still has enormous development opportunities. It has also shown itself to be relatively recession-proof despite a declining overall insurance market. The current economic climate has arguably reinforced its perceived value as unemployment and bad business debts have provided a notable increase in the number of litigated disputes.

In common with the UK, commercial covers complement personal policies for motor vehicles and families, for SMEs, professionals and traders. Cover extends to motoring uninsured loss recovery, licence protection, consumer and employment disputes and a wide range of protection for legal disputes involving businesses.

Legal support
The Italian state funds a form of legal aid yet this is designed mostly to assist the poorest in society and with an extremely modest cap of just €10 600 per annum provides only a limited safeguard to the rights of individuals.

It is certainly no alternative to insured before-the-event products that have been developed to reflect the specific characteristics of the Italian system and market.

"It is certainly no alternative to insured before-the-event products."

Essential culture
Legal protection business is rapidly becoming recognised as an essential part of consumer insurance culture. This is not to say that there is a 'compensation culture' as such; more that individuals are becoming more aware of the possibility of having access to the justice system to protect their legal rights.

By far the majority of LEI, 84%, is sold through agents and brokers in Italy, though there has been a growing trend to exploit what might be termed the 'corporate' market, providing reinsurance treaties with other insurance companies whereby the LEI company provides legal protection services.

Economic downturn
Italy is one of the eurozone's economic PIGS (Portugal, Italy, Greece, Spain) with gross domestic product only expected to grow 1.3%: the downturn in the economic cycle has been characterised by negative growth since 2008 (- 3.06% as of June 2010).

For the first time there has been an overall fall of 4% in the LEI sector and 1.91% in motor. Strong reserving combined with increased rates and disciplined underwriting is, therefore, needed.

"Italy is one of the eurozone's economic PIGS."

Dominant force
Germany remains the dominant force in the European legal protection market with GWP of around €3.2bn, more than ten times that of Italy. France, Britain and the Netherlands occupy the next three places with comparable premium incomes, followed by another group of three - Austria, Poland and Belgium. In broad terms, the combined income of these six countries equals that of Germany.

More than anything else, this illustrates the effect of different national cultures and of their differing attitudes to insurance products, especially in respect of defending the rights of individuals.

Expansion opportunity
The increasingly common problems over debt and employment across the developed world provide both the opportunity for LEI to expand, and so do the increase risk of higher numbers of claims and the uncertainty of the recoverability of legal costs.

State funded legal aid is almost universally under pressure, if it exists at all, and LEI provides the only secure way to open the closed doors of the courts.

"State funded legal aid is almost universally under pressure, if it exists at all."

Access to justice
Marginal growth will be provided by a bigger product offering, but it is the expansion of sales in the main three areas of motor, family and commercial cover that will ensure that the biggest number of people have access to justice.

However, partnerships with other insurers can also develop the market: Arag, for example, enjoys a 50:50 split between income from other insurers and from the agency/broker channels.

Giovanni Nenz is head of communications of Arag Italy