Insurance Review | September 2023
The market of bancassurance is currently undergoing profound changes. In this regard, growth data reveal both strengths and weaknesses of the industry, as well as several opportunities for banks and insurance companies.
There are, of course, risks connected to the low level of proactivity, accuracy and precision on the part of the offer, together with a debt of trust which still needs to be settled.
Crash of life insurance products causes BTP competition and irregular sales
The market of the life insurance sector has decreased by -11% as compared to 2021; 56,9% is collected via bank and post office counters, 26,1% via insurance companies and 15% via promoters.
The net inflow of life insurance premiums (i.e., premiums minus payments for surrender requests, expirations, revenues and casualties) has been decreasing steadily over the past few years, from €43,7 billion in 2014 to €15,4 billion in 2022.
At this rate, in a few years the industry will suffer irreparable damage. Yet, the fall of life insurance stocks is highly unlikely for two main reasons.
Firstly, while less dynamic than other industries such as financial consultancy, insurance companies have been working to design and launch new and more appealing products.
For example, new separately managed accounts (Ramo I) with higher rates and penalties for early withdrawal. At the same time, insurance companies have been persuading established clients to maintain their old subscriptions as they are going to incorporate new BTPs at 4%.
Secondly, the predicament of rates and markets currently affecting the sale of life insurance policies will most likely change.
In fact, the main issue has to do with the sudden rate hike, which has made “variable” life insurance policies (Ramo I, which represent a vast majority) inefficient and unprofitable.
Moreover, the crisis of life insurance policies has affected not only insurance companies but also banks and networks of financial advisors, which have had to manage several surrender requests.
The latest report on financial stability published by Banca d’Italia reveals how financial advisors and banks have been the main victims of the flight from life insurance policies registered since the start of the year.
Ultimately, the offer has failed to explain the difference between a financial investment and life insurance policy.
A policyholder with family should take such difference into account.
For instance, Ramo I policies with separate management of the first recurring payments allow the family of the policyholder to maintain their lifestyle in case of death.
This kind of policy is ideal for single-income families, for people with a mortgage on the house or young dependent children and suits companies as it is possible to insure a key person for the business.
As any other insurance products, Ramo I policies must be understood, explained and offered only to subscribers who may benefit from all their opportunities.
And yet, Ramo I policies are often sold and subscribed for what is perceived as profitable returns with guaranteed capital.
Trading with these products, that is acquiring and selling them, in an opportunistic way and solely on the basis of profitable returns means ignoring their true nature.
The time horizon, the composition of the family, as well as the financial situation of the subscriber are key elements for trading life insurance policies correctly.
However proactive and dynamic, the sector of financial advisors and banks is suffering on this front.
Ultimately, the financial professionals who have been spreading only profitable returns are currently collecting only surrender requests. On the other hand, conscientious professionals are well aware that protection is a different matter.
Spike of non-life insurance over banks
The market of non-life insurance, worth €35,7 billion, has increased by +4,6% as compared to last year. 76,6% is collected via insurance companies, 9,7% via broker, 8,6% via bank and postal counters, and 4,6% via direct sale.
In terms of gross domestic product (GDP), life insurance premiums stand at 4,9% and non-life insurance premiums stand at 1,9%. Italy is the seventh OECD country for relevance of the life insurance sector in terms of GDP and twenty-fifth for non-life insurance premiums (2022 data premiums to GDP and 2021 OECD comparison).
42,6% concerns car insurance policies, 20,1% concerns property and casualty insurance, 19,5% concerns health insurance and 10,5% concerns general civil liability insurance.
In 2022, Italian postal and bank channels collected 8,6% non-life insurance premiums as compared to 7,8% in 2021. Overall, this represents a meaningful growth considering that, in 2009, non-life insurance premiums stood at 2,9%. Together, banks and Poste have tripled their market shares.
The growth in the field of non-life insurance may become at once the driving force of banks for the development of income over the next years and a criteria to better understand the dynamics of the bancassurance sector.
One need only think of the interest attracted by several companies, such as Crédit Agricole, Axa, Generali and Allianz, in the Banco BPM insurance business; or Unipol, designer of the pole BPER-Carige-Popolare di Sondrio; or Cassa Centrale Banca and ICREAA, which, backed by thousands of counters, prepare agreements with insurance partners to sell policies via their own distribution channels; finally, the early-2022 agreement between UniCredit and Allianz.
Similarly, Gruppo Intesa Sanpaolo has been focusing their energies on the insurance business – their Divisione Insurance is worth 20% of the business and has been growing steadily over the past eight years (+7% each year).
Data suggest that the goal has been for the most part achieved, even though in our country the way forward is still long and filled with obstacles, as evidenced by our twenty-fifth place among OECD countries for non-life insurance.
Protect to invest
For banks, the insurance business is both a source of profit margins and, if well-managed, a lever to turn liquid assets set aside on checking accounts in assets under management.
Italians notoriously set aside large amounts of money on their checking accounts, first and foremost to respond to future needs and casualties.
All in all, needs and casualties can be covered by insurance: home, fire, theft, health, life.
And yet, with some exceptions, financial professionals who suggest insurance policies defusing the negative effects of casualties, rarely suggest to subscribers to invest their non-interest-bearing liquid assets, set aside in case of need.
Admittedly, suggesting protection is very different from suggesting a financial investment, which has an inherent risk component: partial or total loss of the invested capital, and liquidability that does not respect the subscribers’ desired timeframe and means.
Few people associate risk to loss of purchase value, a direct consequence of the biting inflation which has been affecting the sector.
Thus, commercial skills and attitudes are fundamental in markets still driven by financial professionals.
A corporate manager, used to providing money, would in all likelihood struggle to be a good financial advisor, used to demanding, acquiring and investing money. Similarly, suggesting a financial investment would be just as complex for an insurance agent.
However, a good bank manager or a good financial advisor could use the theme of protection to assuage the fear of investing money instead of setting it aside as non-interest-bearing liquid assets.
In other words, in an ideal and rational world, financial professionals who can convey a sense of protection from casualties, should also succeed in the arduous task of converting liquid assets into assets under management.
Reality however is very different for several reasons. Simply put, three main factors are currently hindering virtuous behavior.
The first factor is connected to investment returns and performance. Some clients, for example, have invested their savings at a time when inflation stood at 7% and, after six months, their assets reached -12% – what to say then?
If clients have a correct time horizon – for example, at least five years for an equity investment – they should not fear, but rather wait.
However, the real question is: how many professionals discuss time horizon at the moment of subscription?
The second factor is linked to the cost of products and to the way in which it is communicated. In case of an investment for asset management with a cost of 1%, the professional should also explain how much not investing would cost.
The third and last factor concerns trust, the true driving force of both banks and insurance companies. Trust is built over time and on the basis of positive experiences, which are not always present.
Adding up these three factors (performance, costs and trust) reveals that the ball stands in the midfield of the offer (banks and insurance companies) and that only the best professionals can score with no fouls or offsides.
Nicola Ronchetti