Enrico Caruso

Enrico CarusoResponsible for Group Non-Life Technical Activity

Head Office

Assicurazioni Generali S.p.A.

( Italy )

Friday, 3 September 2010

Hydra Island - Greece, September 3rd, 2010

DIRECT SETTLEMENTLESSONS LEARNED FROM THE MARKET - ITALY

Enrico CarusoAssicurazioni Generali - Trieste

3Agenda

I. Brief History.II. The new Direct Compensation.III. The “Forfait” Flat Rate Reimbursement

system.IV. General considerations and Data.V. Appendix.

AGENDA

4THE FORMER DIRECT INDEMNITY AGREEMENT AMONG COMPANIES

The C.I.D. (Convenzione Indennizzo Diretto=Direct Indemnity Agreement) was a procedure which allowed the assured to be compensated directly by the

Insurance Company of its own vehicle rather than that of the guilty.This was based on an agreement signed between private companies

participating on a voluntary base

The Direct Indemnity Agreement history

BRIEF HISTORY

May 15th, 1978

The C.I.D. procedure started The maximum reimbursement rate was L. 500,000 (€ 258.23)

1992 Settlement limit was raised to L. 10,000,000 (€ 5,164.57)

2000 Settlement limit for vehicle damages became unlimited

2004 tillJanuary 31th, 2007

The agreement started to manage injury and carried properties

It was possible to manage, on the same claim, damages included and not included in Convention

5

Damaged party

Mandatary

Company

THE C.I.D. DIRECT INDEMNITY AGREEMENT PROCEDURE

Claims reporting

Claim registration

Claim survey

Counter-partcoverage confirmation

Receivereimbursement

Claim settlement

Reimbursement

Debtor Company

ANIA

AccidentData Exchange

ANIA

ClearingHouse

Liable Party

BRIEF HISTORY

6EUROPEAN COUNTRIES POSITIONING ON D.I.A. IN 2006

COUNTRYScope

MD BIRequirements Main recovery rules

Impact on TPL claims

(%)

France

MD (IRSA): 2 cars involved, chain accident, pile-up

BI (IRCA): disability <5%

Valid also without responsibility assumption

MD: flat reimbursement of 1,204 € for claims <6,500 €,entire sum if >6,500 €

BI: one-by-one recovery in price range

73%

Spain

2 cars involved Valid with responsibility

assumption by one party (CIDE) or without (ASCIDE)

Flat reimbursement for each claims (741€ in 2004, updated annually), up to a monthly maximum of 100,000 €

70%

Italy

MD (CID): 2 cars involved, responsibility assumption needed

BI (CID): claims under 15,000 €; responsibility assumption needed

Entire reimbursement

22%

BRIEF HISTORY

7Agenda



AGENDA

8THE INSURANCE CODE AND THE NEW DIRECT COMPENSATION

THE NEW DIRECT COMPENSATION

TITLE

The Italian Parliament released in 2005 the Insurance Code, and in 2006 enacted the implementing regulations for Direct Compensation,

pursuant to Article 150 of the above Code. Purpose of the Regulator was:

Simplify the current regulatory framework in the field of private insurance.

Shorten the settlement procedures

Stimulate competition among Companies and assure customer service, through better efficiency, settlement speed etc.

Perform an Antitrust action: companies could not learn details of competitors (the amount actually paid on its behalf by the damaged party’s insurer)

Exclude from the offer procedure the costs of professional assistance - except for medical consultation – so the Insurers have to be a consultant for policyholder

Promote contractual innovations, with the inclusion of clauses covering damages to the vehicle in a “specific form”, expressly indicated in the policy (e.g. use of agreed Bodyshops), giving in return to policyholders reductions in premium costs.

THE INTERVENTION OF THE PARLIAMENT IN

ITALY

9THE NEW “CARD” DIRECT COMPENSATION APPLICABILITY CONDITIONS

Claims involving no more than two vehicles

Also without jointly sign

Collision with trailer hooked to tractors

Part of the vehicle dislodged from the structure

Bodily injuries with P.D. up to 9%


10THE NEW “CARD” DIRECT COMPENSATION NON APPLICABILITY CONDITIONS

Claims occurring outside Italy

Boats

Vehicles without license plate

Claims with trailers not hooked to tractor


11

Damaged party

Mandatary

Company

THE NEW “CARD” DIRECT COMPENSATION COMPULSORY PROCEDURE

Claims reporting

Claim registration

Responsibilityagreement

Claim survey

Counter-partcoverage confirmation

Receiveflat rate

Claim settlement

Flat ratereimbursement

Debtor Company

ANIA

AccidentData Exchange

CONSAP

ClearingHouse

Liable Party


12MAIN DIFFERENCES BETWEEN C.A.R.D. AND C.I.D.

FEATURESC.I.D. (before february 1st,

2007)C.A.R.D. (after february

1st, 2007)

Application It is an agreement among Companies: the Insured is entitled to claim damages to their Insurance Company

It is mandated by the law: the Insured is obliged to claim damages to its Insurance Company

Reimbursement among

companies

Full amount: the Mandatary Company recover from Debtor the entire payment (Clearing House system), with light penalties

Mandatary Company is reimbursed by the Debtor with

CARD-CID: a Flat Rate Reimbursement (forfait)

CARD-CTT: an amount calculated on a Flat Rate Reimbursement (forfait), a Plafond, a Deductible and the damage amount

Driver bodily injuries

settlement

Possible only if the report form (the so-called “blue” form) is signed jointly by both drivers or policyholders: the non guilty injured driver is reimbursed from its own Company

Possible although without jointly signed claim report: the non guilty injured driver is reimbursed from its own Company in presence of single sign


13Agenda



AGENDA

14

The “principle of risk reversal” has been recognized as one of the distinctive features resulting from CARD scheme: it means that Insurance Companies should no longer focus so much on caused losses, but especially on handled losses due to the application of pre-established flat rate reimbursements.

In 2007 (introduction of Direct Compensation - art.13, D.P.R. n. 254/2006) it was a single flat rate reimbursement split by geographical area but without any distinction by type of vehicle or damage.

In particular, higher frequency of losses with physical damage were not considered.

E.g.: % of losses with physical damage statistics split by type of vehicle:

50% for mopeds & motorcycles

16% for private cars

7% for buses

The economic impact was negative especially for the Companies with a number of mopeds & motorcycles higher than the Market: flat rate reimbursement was lower than real compensations (and without any consideration regarding the different geographical areas)

THE FLAT RATE REIMBURSEMENT

THE “FORFAIT” FLAT RATE REIMBURSEMENT SYSTEM

15THE EVOLUTION OF FLAT RATE REIMBURSEMENT

• 2008: to avoid huge increase of average premium (especially for mopeds & motorcycles), the Technical Committee defined new flat rate reimbursements distinguishing personal injury and property damage, but still not recognizing them in different way according to the type of vehicles. As in 2007, for Property damage there was the split according to 3 different geographical group.

There still were negative results for the Insurance Companies as the weight and the impact of physical damage split by different type of vehicle was not considered.

• 2010: new flat rate reimbursement were established by the Technical Committee based on the criteria of differentiation detected by the Decree of the Minister of Economic Development on December 11th, 2009

• The compensation is currently split as follows:– a single flat rate reimbursement - CARD CID - for minor personal injuries to the drivers

and for damage to the vehicle insured and property carried - different for two main categories of vehicle: "mopeds and motorcycles" and "other vehicles”. This flat rate reimbursement, in respect to the component of property damage, is also different according to three different geographic macro - areas

– a single flat rate reimbursement for each passenger - CARD CTT - for personal injury and property carried also distinguished for types of vehicles as described above.

THE “FORFAIT” FLAT RATE REIMBURSEMENT SYSTEM

16Agenda



AGENDA

17CARD DIRECT COMPENSATION STRENGTH AND WEAKNESS POINTS

GENERAL CONSIDERATIONS AND DATA

STRENGTH

• Increase of direct managed claims from 22% in 2006 to 81% in 2009• Increase of settlement speed, from 65% in 2006 to 69% in 2009• Better efficiency, together with the pervasive use of unique small bodily

injury compensation table up to 9%, helped to stabilize and decrease the risk premium in 2005-2009

WEAKNESS

• Complication of litigation procedures and their length (e.g.: when the defendant explains counter-claim or asks in Guarantee Call its Insurer)

• In June 2009 the Italian Constitutional Court declared optional the lawsuit to its insurer

• Practical claims management problems (e.g.: SARC offices- special internal offices for contacts among companies -, partial use of Clearing House automatic compensation, etc.)

• Increase of submerged speculation on small damages, with a value less the flat rate reimbursement sum: this could cause in aggregate, a slight increase of the overall costs of compensations

18SOME DATA ABOUT CARD

GENERAL CONSIDERATIONS AND DATA

2007 2008 2009 2007 2008 2009

Caused Claims frequency (no IBNR) 7,61% 7,73% 7,76% 8,30% 8,47% 8,58%Managed Claims frequency* (no I BNR) 7,72% 7,92% 7,94% 8,41% 8,67% 8,78%

% CARD Claims** 73,7% 75,9% 80,9% 79,6% 80,9% 85,2%% NO CARD Claims** 27,4% 25,1% 20,0% 21,6% 19,9% 15,7%

CARD Current Year Claim Settlement Speed 71,1% 73,8% 73,2% 72,5% 75,4% 74,6%NO CARD Current Year Claim Settlement Speed 55,4% 53,7% 48,4% 50,3% 49,1% 41,9%

(* ) Manged claims are both CARD and NO-CARD

(**) The CARD/NO CARD sum could be more than 100, a claim could be both CARD and NO-CARD

Sources ANIA : "Motor Focus n. 17" and "I talian I nsurance in 2009-2010"

total motor TPL of wich private cars

MOTOR TPL MARKET

MOTOR TPL MARKET

Hydra Island - Greece, September 3rd, 2010

DIRECT SETTLEMENTLESSONS LEARNED FROM THE MARKET - ITALY

Enrico CarusoAssicurazioni Generali - Trieste

20Agenda



AGENDA

21LITIGATION AND SETTLEMENT SPEED (MOTOR TPL MARKET)

301.892

285.031

255.383

268.759

65,20%

67,60%

69,70%

69,00%

2006 2007 2008 2009

Litigation (Civil Lawsuit) Settlement speed

APPENDIX

Source: "Italian Insurance in 2009-2010" (ANIA )

SETTLEMENT SPEED

Percentage of not null Motor TPL claims

settled the same year of occurrence

SETTLEMENT SPEED

Percentage of not null Motor TPL claims

settled the same year of occurrence

LITIGATION

All pending Civil Lawsuits on motor TPL - every Status of Case

and Courts

LITIGATION

All pending Civil Lawsuits on motor TPL - every Status of Case

and Courts

MOTOR TPL MARKET

MOTOR TPL MARKET

22CLAIM FREQUENCY AND AVERAGE COST (MOTOR TPL MARKET)

APPENDIX

4.100

3.967

3.9133.902

7,47%

7,61%

7,73%7,76%

2006 2007 2008 2009

Average paid Claim frequency

CLAIM AVG COST

total cost of claims (paid and reserved) by

their number

CLAIM AVG COST

total cost of claims (paid and reserved) by

their number

CLAIMS FREQUENCY

the ratio between the n. of claims not null

and the n. of vehicles

CLAIMS FREQUENCY

the ratio between the n. of claims not null

and the n. of vehicles

MOTOR TPL MARKET

MOTOR TPL MARKET

Source: "Italian Insurance in 2009-2010" (ANIA )

23INCIDENCE OF DIRECT SETTLEMENT IN MARKET MOTOR TPL OPENED CLAIMS

APPENDIX

% CARD CLAIMS

85,280,979,6

83,179,778,4

43,131,4

16,5

71,5

62,660

44,9

37,9

34,8

58,5

57,8

35

200920082007

Private cars Motorbikes Mopeds Lorries<35q

Lorries>35q Other

% NO CARD CLAIMS

15,719,921,618,121,523

5869,7

84,229,3

38,141,1 55,8

63

66,4 43

44,2

65,7

200920082007

Private cars Motorbikes Mopeds Lorries<35q

Lorries>35q Other

Source: "Motor Focus n. 17" (ANIA )

Note: the CARD/NO CARD sum could be more than 100, a claim could be both CARD and NO-CARD

MOTOR TPL MARKET

MOTOR TPL MARKET

24SETTLEMENT SPEED EVOLUTION – BREAKDOWN BY TYPE OF VEHICLE

APPENDIX

% Claims% CARD Claims

%no CARD Claims


%no CARD Claims


%no CARD Claims

Private cars 70,1 74,6 41,9 70,8 75,4 49,1 68,5 72,5 50,3

Motorbikes 54,5 56,1 47,8 57,2 57,5 54,7 57,4 55,4 58,7

- of wich Motorcycles 52,1 56,2 29,7 54,2 57,9 37,5 52,5 56,1 36,9- of wich Mopeds 61,8 55,6 65,2 65,3 54,7 69,1 69,3 47,4 72,9

Lorries 67,9 73,0 57,3 68,3 72,7 61,7 67,4 69,8 63,3- of wich <35q 68,8 74,5 53,3 69,9 74,6 60,9 68,9 71,8 62,7

- of wich >35q 65,1 66,1 63,5 64,1 64,5 63,0 63,8 61,2 64,1

Others 72,3 74,3 67,1 69,1 70,5 64,1 69,5 66,6 70,2

TOTAL 68,9 73,2 48,4 69,4 73,8 53,7 67,6 71,1 55,4

Source: "Motor Focus n. 17" (ANI A )

YEAR 2009 YEAR 2008 YEAR 2007

MOTOR TPL MARKET

MOTOR TPL MARKET

Education

Enrico Caruso