Insurance Daily | March 2023 

An elegant, yet seemingly harmless Irish woman has thrown into disarray the financial industries of France, Germany, and Italy.

Her name is Mairead McGuinness: born in Drogheda in 1959, McGuinness has been serving as European Commissioner for Financial Stability, Financial Services and the Capital Markets Union since October 2020. She is part of the Irish right-wing party Fine Gael and of the European People’s Party.

Recently, McGuinness has dived headfirst into an issue very dear to those who see banks and finance as the antichrist: inducements.

Inducements are incentives received by banks and financial networks from external companies (in particular, the so called “fabbriche prodotto”) to distribute their products to end investors.

These incentives are intended to cover the costs of suppliers and individual professionals (it is the case, for example, of financial advisors).

In theory, nothing shocking considering that in order for milk to be available in supermarkets, milk producers give the supplier a margin to cover the distribution costs.

However, some compare Germany, France and Italy to countries with very different histories and distribution models like Belgium or the United Kingdom and cry scandal.

In fact, the 2012 RDR Retail Distribution Review did not cut the average cost of financial products by abolishing the inducements in the UK, where end clients pay the advisor instead of the supplier.

Meanwhile, however, people who cannot afford to pay a financial professional are compelled to do for themselves through online consultancy platforms, which, however, are not accessible to everyone. 

In the UK, there is no financial advisor working with the support of a bank or financial network, but rather the Independent Financial Advisor. There, the RDR resulted in the disappearance of financial professionals with small portfolios as well as less advanced clients.

Of course, the discussion is open and there is valid ground for both removing and keeping inducements.

Few, however, have investigated the impact that this may cause in the insurance division and, in particular, on bancassurance agreements.

In fact, if a bank does not have an insurance company, but relies on an open architecture offer and thus on one or more external companies, the removal of inducements could cause a true earthquake.

Today, nobody needs earthquakes. Especially in Italy, where the phenomenon of underinsurance bites more than inflation and could potentially cripple the population, whose fragility has increased along with life expectancy.

Some among the most cunning political analysists claim that lady McGuinness has declared war to inducements only because she sought visibility at the end of her mandate. Others say that this is much ado about nothing.  

On the other hand, many believe that there will be consequences in the revision of the business model, maybe not immediately considering the timing of European bureaucracy. And that these changes might lead to the relaunch of asset management and insurance.

If so, there are people who believe that the remedy could be worse than the (presumed) evil.

Nicola Ronchetti