Insurance Review | April 2020
There are at least three reasons why banks and insurance companies share a common destiny: 1) they deal with the same ‘raw material’, money management and protection; 2) they are enduring the maturity of the markets in which they operate and, in order to step out of the dark ages, they need to pave the way for a new renaissance; 3) they are complex machines having their engine in the trust of their clients and their drive belt in the distribution system.
With respect to banks, the reputational crisis started with the collapse of Lehman Brothers and culminated in Italy with the case of the Banca Popolare di Bari, preceded by the cases of MPS, Banca Etruria, Banche Venete, Carige, the sale of the Cirio and Parmalat bonds, of the Argentine bonds and, more recently, of diamonds.
Results: € 1.500 billion parked in liquidity, since many Italians do not trust banks to manage them; 25% of Italians invest their savings compared to 50% in 2001.
Italian people have a poor financial culture; however, the banking system should maintain a healthy dose of self-criticism: over the past two years alone, a minority (luckily) of so-called bankers, inadequate and dishonest, have thrown away € 45 billions of private savings.
We all know that in finance, as in nature, ‘one tree falling makes more noise than a whole forest growing’, so to speak.
As for insurance companies, the situation is very similar. Italians are a chronically underinsured people, showing a strong predisposition for real estate ownership and liquidity, regardless of the high costs and low profitability of the housing stock, having depreciated by an average of 40% over the past ten years.
Thus, our two main concerns – real estate and cash – betray perhaps our peasant origins and confirm that we, as a people, focus on the present instead of the future.
In fact, we seem to suffer from the Peter Pan Syndrome: we like to live in eternal youth, refusing to grow up, to accept our responsibilities and to make the right choices for those who are going to come next.
We spend € 15 billion every year: € 9 billion in in-home nurses and € 5 billion in nursing homes bills, without having considered at the right time a Long Term Care insurance policy against the risk of loss of self-sufficiency.
More than three Italians out of four (77%) own a house; however, only 25% of houses are covered by an insurance policy. Worse still is the case of accident policies, life assurance, family and medical insurance.
According to the OECD, Italy is the 4th country for longevity with an average life expectancy at birth of 85 years. Therefore, the risk is that we may survive our savings, completely exposed to risks.
In the insurance field, the client’s confidence in insurance companies is put to the test by a well-known moment of truth – the settlement of accident claims; this rarely turns into an edifying experience, especially in a country in which the high percentage of frauds makes insurance companies very biased even towards those who act in good faith.
The distribution system
The success or failure of banks and insurance companies is tightly linked to that of their own distribution networks.
With one substantial difference: while banks rely on tens of thousands of employees and thousands of branches, companies rely on networks made of businessmen-agents who, in most cases, are anthropologically less likely to blindly follow the guidelines of their principal respect to a salaried employee.
For different historical reasons, banks and insurance companies experience the same paradox: not having – in most cases – full control of their distribution network at a time when this represents the key element for a quick change of direction.
On the one hand, most banks are forced to resort to much more efficient models of service, such as digital banks and networks of financial advisors, with the limitation of a physical network made of local branches, something which needs to be redeveloped and gradually disposed of.
On the other hand, most insurance companies face the challenges of the distribution network, which make the implementation of offer innovation policies much more difficult.
This is testified by the figurative massacre of agents who have stopped their activity over the past ten years (-29%), but also by the closure of branches (-34%) and the number of redundancies in the banks (over 35 thousand) over the past 5 years.
However, in such context there is no lack of opportunities: in desperate need of new margins of intermediation, both banks and insurance companies have been hybridizing their offer.
On the one hand, banks have found new sources of profitability in the field of damage insurance, together with the field of life assurance in which they have had for a long time a predominant position as compared to insurance companies.
On the other hand, insurance companies are reacting by offering package solutions through insurance ecosystems and by extending their offer to financial-insurance products (“ramo 1” and “ramo 3” policies).
The main enabler for the actualization of such strategies is the digital component, although success seems to be tightly linked to the relationship between clients and ‘network people’ (agents or employees).
The ongoing Risk-like game – the OPS of Intesa SanPaolo on UBI and the next moves by MPS, Banco BPM and BPER – is going to radically change the insurance competitive scene; the power relations between UnipolSai and Generali will need to be reconsidered, together with the role of Mediobanca and the fate of Aviva, AXA and Cattolica.
One thing is for certain: banks and insurance companies will always share a common destiny.