Embedded Motor Insurance: Benefits, Risks, and Market Statistics

EMBEDDED MOTOR INSURANCE 10th AIDA EUROPE CONFERENCE Massimo F. Dotto CMS Italy

Embedded EmbeddedInsurance Insurance Brief description of the business model and main fields of application - - - - - - Travel companies / Airlines + travel insurance Banks / Financial services + insurance policies E-commerce and retail + cover for damages or theft / device protection Real estate company + home insurance Businesses (medical / dental insurance part of employee benefit package) Gyms and sport clubs (cover for physiotherapy as part of membership) CMS Italy 2

Automotive industry Automotive industry Example of embedded motor insurance products Civil liability (coverage required by law) Total or partial theft Weather events (including hail) Vandalism and sociopolitical acts Roadside assistance Collision (in various forms, including specific coverage for Electric Car Battery) Coverage for loss of value of vehicles (the so-called Gap Guaranteed Auto Protection ) Glass and other minor guarantees (such as loss of baggage, registration fees, etc.) CMS Italy 3

Benefits and risks of Embedded Insurance Benefits and risks of Embedded Insurance Convenience (no need for additional paperwork / purchase on the same spot) Cost Savings (possible discounted rates) Profitable marketing strategy for the Insurers (wider distribution / new customer segments) Solution to the insurance protection gap Limited Customization (less flexibility in choosing coverage levels) Protection of consumers (need for transparency / risk of unnecessary insurances) CMS Italy 4

Statistics Statistics - - Global Global - Market size (gross written premiums) expected to increase from USD 156.06 billion in 2024 to USD 703.44 billion by 2029 compound annual growth rate of 35.14% during this period (Deloitte Insights) CMS Italy 5

Statistics Statistics - - Europe Europe - Market industry expected to increase from USD 10 billion in 2022 to USD 28,5 billion by 2029 compound annual growth rate of 19.4% during this period (PR Newswire) Landscape of Embedded Insurance booming in Europe, with countries like the UK, Germany, and France contributing significantly to the business growth in the region. CMS Italy 6

Legal and Regulatory Considerations Legal and Regulatory Considerations - - European perspective perspective European Insurance Distribution Directive ((EU) 2016/97 (IDD) standards on insurance distribution Clear and transparent contracting (communication and disclosure provisions) Cross-selling (embedded insurance contract should always be optional) Inducements (customers being aware of intermediary s remuneration) General Data Protection Regulation (GDPR) (Regulation (EU) 2016/679) Solvency II Directive (Directive 2009/138/EC) Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation (EU) No 1286/2014) CMS Italy 7

Legal and Regulatory Considerations Legal and Regulatory Considerations - - Italian perspective perspective Italian Italian Private Insurance Code (CAP) - Article 120-quinquies Consumer protection Insurance is the main product: the distributor must inform the policyholder about the possibility of purchasing the different components of the package separately Insurance is ancillary to another product: the distributor must provide the policyholder with the option to purchase only the main product Both cases: the distributor must specify the reasons why the insurance product is deemed suitable to meet the policyholder's needs and requirements CMS Italy 8

possible intervention by the competition and market authority in the case of aggressive and unfair commercial practices possible intervention by the competition and market authority in the case of aggressive and unfair commercial practices Legal and Regulatory Considerations Legal and Regulatory Considerations - - Italian perspective perspective - - 2 2 Italian IVASS (Italian Insurance Supervisory Authority) Reg. 40/2018 (Article 59-bis) provides that policyholder must be provided with: 1. description of the different components of the agreement or package 2. separate evidence of the costs and charges of each component 3. how the composition of the agreement or package changes the risks or insurance coverage Public enforcement mechanism: IVASS can apply precautionary and prohibitive measures provided by the CAP, including the power to prohibit bundled sales when such practices are harmful to consumers Competition and Market Authority can apply the same measures in case of unfair commercial practices CMS Italy 9

Exemption Exemption Cases where the contract may NOT be considered as insurance (narrow interpretation of courts) Free insurance (no premium is paid by consumer) o True service or guarantee (maintenance or repair) o The subscription is a subordinate part of the purchase agreement o Ancillary insurance intermediaries (not subject to licence / authorization) o principal professional activity is not insurance distribution distribution of insurance products are complementary to a good or service insurance products do not cover life assurance or liability risks CMS Italy 10

Case Study MGA Case Study MGA Client: MGA distributor of insurance products on behalf of Italian and foreign companies Recipients: Car dealers Scenario: crisis of the car distribution market (-10% registration of new cars per year) MGS offers new opportunities of profit (sale of services being more profitable than sale of cars) CMS Italy 11

Case Study MGA Case Study MGA - - Contractual framework Contractual framework Join a group scheme Define a group scheme Reduce administration costs and facilitate sale process Minimize compliance and accounting requirements Car Dealer MGA Local Broker Manages and distributes insurance policies INSURANCE COMPANY Holds the risk and provides Compliance CMS Italy 12

Case Study MGA Case Study MGA - - Distribution to final customers Distribution to final customers ANTI THEFT SYSTEMS MGA PROVIDES THE DEALER WITH A GROUP POLICY WITH VARIOUS COVERAGE OPTIONS THE DEALER OFFERS DIFFERENT PACKAGE LEVELS, WITH A GOLD/SILVER/BRONZE PHILOSOPHY TO SUIT THE TYPE OF VEHICLE AND THE CUSTOMER' SPENDING CAPACITY INSURANCE PRODUCTS THE DEALER DISTRIBUTES AND INSTALLS ANTI-THEFT SYSTEMS (profit margin for dealer + reduction of premium for consumer) FINANCIAL SERVICES IN ADDITION, THIS SEGMENTATION ALLOWS TO INCENTIVISE AND THUS REWARD THE SALES NETWORK CONTEXTUALLY, DEALER COLLECTS ALL WITH FINANCIAL INSTRUMENTS EMBEDDED OFFER CMS Italy 13

Case Study MGA Case Study MGA - - Check of compliance Check of compliance Check Check of of compliance compliance of of the the whole whole project project to to regulatory regulatory provisions provisions Car dealers as an exempt (ancillary) insurance intermediaries - no licence required Pre-contractual information are provided by car dealers including: - reasons why insurance product is deemed suitable - description of different components of package with separate evidence of costs and charges - how composition of the package changes the risks (e.g. installation of anti-theft device) Option to purchase only the main product Transparency of the policy itself (terms, coverage, and limitations being clear/fully understandable) CMS Italy 14