Banks, between mergers and Bancassurance arrangements

Insurance Review | February 2021

Companies share an old Hamletic doubt: making or buying? This question reflects the alternative each company has between producing (making) or acquiring (buying) goods and services necessary for their activity.

The choice has strategic importance because it leads to a direct comparison between the unit costs of production of goods produced by the company itself, and the costs of goods acquired from a specialized manufacturer. 

The production of a given service is carried out following a series of phases, however not every stage shares the same economies of scale. Therefore, the risk is for some of them to be either undersized or oversized; moreover, the production capacities my not be used in the best possible way. 

A specialized manufacturer, on the other hand, can produce the same component with significant cost reductions and is able to supply several companies at once, even when they are in competition with one another. 

Themakingchoice emphasizes the internal control of the production process and its hierarchical aspects, at the risk of stiffening the production cycle and emphasizing fixed costs.

The buyingchoice enhances the market, reducing fixed costs and increasing the flexibility of the organization, at the risk, however, of losing control over the regularity of the production flows and the quality of the cycle components. 

When the financial world was rich and carefree, the more aggressive managers had no such doubt and answered the question with a blunt buying, opting for a short-term economic logic; however, their three-month assessments prevented them from having a medium and long-term vision. 

Today, we know that the choice between making and buying has proven to be crucial for a series of banks. 

Let’s start from the largest Italian bank: Intesa Sanpaolo. Intesa Sanpaolo, the result of the merger of over 120 banks, has decided to incorporate the product producers, thus becoming the emblem of the makingalternative. 

In terms of asset management, Intesa Sanpaolo owns EURIZON and, more recently, PRAMERICA. On the insurance front, Intesa Sanpaolo owns five businesses: Fideuram Vita, Intesa Sanpaolo Assicura, Intesa Sanpaolo Life, Intesa Sanpaolo RBM Salute, Intesa Sanpaolo Vita.

The objective of Carlo Messina, CEO of Intesa Sanpaolo, had already been put down in writing in the Piano di impresa 2018-2021: becoming the first damage insurance company in Italy (excluding the field of car damage insurance). 

On the other hand, the second largest Italian bank, UniCredit. UniCredit has chosen to sell its AMC Pioneer to the French giant AMUNDI; as for insurance, UniCredit is working in joint venture with Allianz and Generali.

While the two most important Italian groups have chosen different paths, it is interesting to see which direction other banks are taking. 

The two main French banks – the group BNP Paribas and Credit Agricole – have chosen the same direction as Intesa Sanpaolo. On the contrary, Deutsche Bank has started an international joint venture with Zurich.

In Italy, UBI has become part of the Intesa Sanpaolo group, abandoning AVIVA. This led the English company to close its doors in our Country. UBI’s choice is in line with the aim pursued by Amanda Blanc, CEO of the Group: focusing on ‘domestic’ business. 

Moreover, the introduction of Generali in Cattolica means that the bancassurance arrangement Cattolica has with Banco BPM – Vera Vita and Vera Assicurazioni – is bound to end up in court. In fact, Banco BPM wishes to acquire the joint venture and follow the model of Intesa Sanpaolo. 

What about BPER and UnipolSai? The agreement signed by Carlo Cimbri, CEO of UnipolSai, and his namesake has determined Intesa Sanpaolo’s success with the conquest of UBI. At the same time, this allowed the group from Bologna to (finally) become quite a large bank. 

There is still the problem concerning MPS, which would seem bound to merge with UniCredit. The bank from Siena has a well-established bancassurance arrangement with the French AXA, which would bring to Jean Pierre Mustier’s ex bank yet another arrangement to manage. 

Undoubtedly, the merger and integration processes of big banking groups will be mirrored by changes made within bancassurance arrangements. 

There are many reasons underlying such big maneuvers. There are two main ones. The first reason is financial in nature: when rates amount to zero, insurance products may guarantee positive margins, especially in a country – like Italy – with little insurance culture or coverage. 

The second reason is linked to the ability to retain the customer base, offering a “one stop shop” service model which includes services pertaining to three crucial aspects: protection, credit and asset management. 

This is a very important challenge for banks. In fact, owning an insurance company is not enough to make a sales network more proactive and propositional and, at the same time, to guarantee an adequate level of service to clients. 

It is certainly a challenge to be faced with great resolve: what is at stake are noy merely the bank’s financial statements, but also the standards of living of millions of companies and Italian families. 

The most enlightened bankers have realized this a long time ago; we hope the others will follow suit.

Nicola Ronchetti