New vulnerabilities, savers in search of protection.

A unique opportunity.

Insurance Daily | May 2020

The issue of new vulnerabilities related to ESG themes has been on the agenda of all stakeholders since before the pandemic.  

We need only read the letter written in January 2020 by Larry Finch, Founder & CEO of BlackRock, the largest asset management company  (7 million dollars): “We are on the edge of a fundamental reshaping of finance,” since climate change is compelling investors “to reassess core assumptions about modern finance”.  

This is going to have a major impact on our system of economic growth. Nothing is going to be the same: our cities will change, and so will the role of mortgages, inflation and protection in the age of climate change. “What will happen to the 30-year mortgage – a key building block of finance – if leaders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas?”. 

And then came Covid-19: what would have normally required three/five years has become a reality in only three months. We all felt more vulnerable, especially in Italy, where life is comfortable and long, where the average life expectancy at birth is 85 years (Italy ranks fourth among OECD members for longevity). 

Our public debt is tremendous, nearing 2.500 billion euros. On the other hand, the value of the assets owned by Italian families is four times higher: 10.000 billion euros – 5.500 in houses and lands, 1.000 in pension funds, 800 in financial contributions; and that leaves 2.700 billion euros, of which 1.500 are deposited in bank accounts. 

In Italy, there are two main limitations: 1) a very backward financial culture and 2) a very low propensity towards protection, that is insurance.  

Today, this seems to be changing: Covid-19 succeeded where three generations of CEOs and Chief Marketing Officers working in some of the most high-end insurance companies have failed, within a market governed by supply.  

In January 2020, only 10% of Italians claimed to be interested in underwriting a health insurance policy. Since May 2020, figures have grown, reaching 34% (Source: FINER Finance Mirror 2020; sample: 5.200 people representative of the adult Italian population; collection of data: May 2020). 

Protection has become the new mantra of the Italians who suffered from the inadequacy of the national healthcare system, clearly unable to protect them.  

As for asset management, financial advisors are employing mainly two tools to meet the opportunities offered by the new-found volatility of financial markets: DCA/unit cost averaging (42%) and composite insurance policies (39%) (Source: FINER Lockdown Monitor 2020; sample: 1.000 financial advisors interviewed between 8 March and 10 May 2020). 

Unit cost averaging represents nothing new, especially in the form of fixed monthly set-asides. Ennio Doris, the pioneer of financial consultancy in Italy, based the success of Banca Mediolanum on this simple system alongside the theme of protection.  

Today, insurance companies, banks, insurance agents, financial advisors have first and foremost a moral duty, rather than a business opportunity: to seize the day, to call clients and attract their interest towards the need to invest, to protect their future and the future of their families.  

Several professionals are already at work – some of them work in a sustainable way; some other seem numb or follow an old commercial logic. We feel confident that the future belongs to the former.