Bancassurance a growth channel for commercial insurance

Banks in Italy currently hold just 4% of the general insurance market, however, with significant growth in demand for commercial insurance such as directors’ and officers’ Maurizio Ghilosso explains why this might be the ideal channel to tap into this market.

The bancassurance market in Italy is burgeoning and is seen by many as a distribution channel that has great market potential for commercial insurance.

An example of this is the agreement Dual Italia, part of the Dual Group, announced in May with Intesa Sanpaolo Group, the largest bank in Italy and one of the largest in Europe, to sell directors' and officers' policies through all of the bank's branches that service corporate clients.

Agent domination
Banks currently account for just 4% of the Italian non-life market compared to 8% through brokers and 84% through agents who still dominate the Italian market - there are approximately 28000 agents versus 3200 brokers.

As a distribution channel, for non-life insurance, the banks make up a very small percentage of the market, although in the previous three years they recorded a double digit growth compound annual growth rate.

"Banks currently account for just 4% of the Italian non-life market."

Lion's life share
Banks have, however, enjoyed some success in the personal lines and life arena; indeed in Italy the banks retain the lion's share of the life market at 60%. While not all of those customers will also have commercial insurance needs, that is still a huge as yet largely untapped market potential for cross selling related commercial insurance products like professional indemnity and DO insurance.

The D&O market as a whole in Italy is still undeveloped. There has, however, been a significant growth in demand for the product since 2004 when company law was reformed and introduced stricter requirements for directors, officers and statutory auditors, expanding both the role and the rights of shareholders.

Litigious Society
Since then Italy, a renowned litigious society, has seen D&O claims increase significantly - no market statistics are available, but recently a local study suggested that around 350 claims were reported in 2007 in Italy, compared with just 13 in 2000.

In the meantime the D&O market has grown 25% year on year. Thanks to more awareness and education by insurers, intermediaries also now have a better understanding of these policies and are better able to explain the potential risks to their clients and the cover that D&O offers, which also goes some way to explaining the growth in D&O.

"Italy, a renowned litigious society, has seen D&O claims increase significantly."

Changing landscape
The banking landscape has changed dramatically in Italy over recent years with consolidation rife and staff number cut. As is the case around the world in the current climate, banks needs to seek efficiencies and maximise opportunities for revenue.

Traditionally the focus has been on retail customers but the banks are now increasing their focus on their business customers and most now have business plans dedicated to developing products tailored specifically for their business customers.

Untapped potential
Despite the apparent market potential for D&O sold through the bancassurance channel few players have as yet been successful in tapping into it - the deal with Intesa Sanpaolo is one of only a handful of D&O bancassurance partnerships. There are arguably a number of very good reasons for this.

First, while the appetite for D&O and the potential cross sell opportunities through bancassurance might be evident, premiums have not risen at the same rate as the growth in demand for the product. As in the UK, the market is still suffering from a protracted soft market and currently does not show any sign of hardening. Rates are very low and at the SME level premiums are comparatively small.

"The banks are now increasing their focus on their business customers."

Micro enterprise
Second, Italy has the largest concentration of micro-small enterprise in Europe. Out of the five million companies registered in Italy 99.6% of them are SMEs with less than 50 employees, so on the whole the average limit of indemnity and premium level is small compared to larger organisations.

Last, although there has been a significant growth in D&O it still only accounts for 2.5 - 3% of the 3.3 billion euros general insurance market in Italy. Against this backdrop it is perhaps, therefore, not so surprising that banks have not generally viewed D&O as a profitable enterprise.

Seeing growth
Despite all of this some firms have managed growth year on year in spite of the soft market and a challenging economic environment, and Dual for one expects to roll out its D&O bancassurance model to its other territories across the globe.

Dual Italia alone hopes to double its 3% current market share in part thanks to the potential of bancassurance in the D&O market in the next 18-24 months.

Maurizio Ghilosso is managing director of Dual Italia, part of the Dual Group