Industry Attractiveness
The Italian insurance industry is the fourth-largest insurance industry in the European region behind the UK, France and Germany, in terms of gross written premium. These four countries collectively accounted for more than 70% of the European insurance industry value in 2011. The French, German and Italian insurance industries all expanded rapidly between 2008 and 2010, as poor overall economic performance encouraged consumers to seek the financial security associated with insurance products.
The Italian insurance industry grew from EUR99.1 billion (US$135.8 billion) in 2007 to EUR110.6 billion (US$154.1 billion) in 2011, in terms of written premiums, at a CAGR of 2.8%. The Italian insurance industry is also a key contributor to the country’s economy with a penetration rate representing more than 8% of the country’s GDP in 2010. Despite this, the overall Italian insurance industry contracted by 12.2% in 2011, as a result of a dramatic fall in the second half of the year. The impact of the European sovereign debt crisis, and declining sovereign bond yields continued to damage the Italian insurance industry’s profitability.
The Italian insurance industry is dominated by the life insurance segment, which accounted for a market share of 66.7% in 2011 and was followed by the non-life insurance with a market share of 28.1%. The Italian life insurance segment expanded at a CAGR of 4.7% between 2007 and 2011, due to the rising demand for traditional products with guarantees.
However, the life insurance segment declined in the latter half of 2011 due to the impact of the European debt crisis. The gradual recovery of the Italian economy and improvements in the level of household disposable income are expected to promote the demand for life insurance over the coming years. The implementation of Solvency II legislation is likely to increase consumer confidence as life insurance companies continue to enhance their risk-management systems.
The Italian non-life insurance segment is dominated by the motor insurance category, which accounted for a market share of 66.8% in 2011. Government initiatives towards liberalizing the Italian motor insurance category are expected to contribute to the growth of the non-life insurance segment. The Italian government is aiming to stimulate competition and offer discounts to people who can’t afford the existing liability rates as a part of this process of liberalization. The government will also target the large number of uninsured vehicles in the country, totalling an estimated 3.5 million. The government has also introduced seven new articles, out of which, five will focus on fraud, while the remaining two are designed to encourage competition.
The Italian government is planning to introduce discounts to consumers who are ready to submit their vehicles for inspection by insurance companies. The discount rate will be increased if the consumer opts to install a black box which will record the vehicle’s activity and help to determine the cause accidents. In addition, the government also introduced open competition into the category. Indeed, article 34 indicates that agents marketing car insurance must provide the customer with three different quotes from three different companies.
The Italian insurance industry is heavily dependent on bancassurance, post office and insurance agents to distribute various insurance products. Bancassurance and post offices are the leading distribution channels for life insurance products. Both these channels accounted for more than 60% of the market in 2011. In terms of distributing non-life insurance products, insurance agents accounted for around 85% of the overall market share.
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Segment Outlook
The Italian life insurance segment is mainly driven by the strong demand for traditional life insurance policies. The segment recorded its highest written premium of EUR90.1 billion (US$119.6 billion) in 2010. However, the segment contracted as a result of the global economic crisis in 2008 and due to the European sovereign debt crisis in 2011. The global economic crisis affected the sales of life insurance products, especially unit-linked policies, which declined from EUR16.8 billion (US$24.7 billion) in 2008 to EUR8.09 billion (US$11.27 billion) in 2009. Despite this, the Italian life insurance segment was only marginally affected by the economic crisis compared to the life insurance segments in other European countries such as the UK.
The demand for guaranteed products from Italian retail consumers supported the high growth of 48.6% in written premium of this segment in 2009. Life insurance policies such as superannuation and pensions are expected to experience strong growth up to 2017, due to the country’s aging population. Furthermore, the country’s falling normal interest rates will also encourage people to invest in life insurance. The life insurance segment recorded an overall CAGR of 4.7% between 2007 and 2011, although it registered a decline of 18.0% in 2011. The life insurance segment is expected to record a modest CAGR of 2.4% over the next few years, rising from EUR73.9 billion (US$102.8 billion) in 2012 to EUR83.2 billion (US$115.9 billion) in 2016.
The profitability of life insurers operating in Italy was affected by the global economic crisis in 2008, which reduced the Italian population’s demand for unit-linked products. The global economic crisis and eurozone sovereign debt crisis both played active roles in reducing the demand for life insurance products between 2007 and 2011, while the weak performance of the global stock markets put pressure on the profits of insurers. The investment in long-term life insurance products such as superannuation and pension registered a decline after the economic crisis.
Furthermore, Italian life insurance companies prefer to invest in fixed income assets due to their conservative nature, and this also influenced the life insurance segment in the same period. The conservative nature of Italian life insurers exposes them to government bonds and traditional products with guarantees, which limit their profitability.
The Italian life insurance segment is highly concentrated, and the 10 leading insurers accounted for a market share of 82.8% of the segment’s written premium value in 2011. Gruppo Generali is the leading Italian life insurer with the largest share of 16.8% of the total segment value in 2011, followed by Gruppo Intesa San Paolo with the second-largest share of 14.9%.
The Italian life insurance segment is regulated by the Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse Collettivo (ISVAP), which is also responsible for regulating the non-life insurance and personal accident and health insurance segment. The life insurance segment is regulated by the private insurance code of 2006, which allows the ISVAP to issue regulations on specific areas of insurance.
The Italian insurance law encourages open competition in the segment. According to the Article 34 and Decree No. 1, which is expected to be converted into law, banks and financial institutions that sell life insurance policies have to provide two different policies in addition to the one they are mainly offering. The introduction of this law will increase the level of competition in the life insurance segment. Furthermore, the Italian insurance regulator also introduced the regulation no. 32/2009, which became effective in January 2010. The main objective of the regulation was to protect and strengthen the interest of policyholders and to regulate life insurance companies in their structuring of index and unit-linked policies.
Italy’s aging population is expected to be the key driver for the life insurance industry’s growth. Italians have one of the highest life expectancies in the world. The average age of women in Italy was 84.1 years in 2010, while it was 78.9 years for men. With this long life expectancy, Italian consumers are more inclined to purchase life insurance policies such as pensions as these can serve as a form of retirement savings for them.
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By GlobalDataDistribution Channel
The distribution of Italian life insurance products is mainly through bancassurance, agencies, direct marketing and other distribution channels. Bancassurance is the leading distribution channel for life insurance products in Italy, followed by agencies and direct marketing. This is because bancassurance enables insurance companies to access the large customer base of Italy’s highly developed banking companies, which supports the sale of more life insurance products.
Bancassurance was the largest distribution channel in terms of written premium generated by distributing life insurance policies in the country in 2011. As a result, the success of an Italian life insurance company is highly dependent on which banking companies they have bancassurance partnerships with. The life insurance written premium generated through bancassurance valued EUR33.15 billion (US$46.15 billion) in 2011. The strong consumer confidence in banking companies was significant in driving the growth of the bancassurance channel between 2007 and 2011. Since bancassurance is an effective channel for selling life insurance policies, several Italian insurers have signed bancassurance agreements with banking groups. For example, the Dual Italia signed an agreement with Intesa Sanpaolo Group to sell life insurance policies in the bank’s branches. The bancassurance channel is also a preferred channel among life insurance companies as it is relatively cost efficient.
The bancassurance channel accounted for the largest share of 57.8% of the written premium generated by life insurance distribution channels in 2007, followed by insurance agents with a share of 21.1%. These shares increased to 60.9% for bancassurance and to 22.8% for insurance agents in 2011. The popularity of insurance agencies among Italians made it the second-largest distribution channel for the life insurance segment. The channel’s share is expected to continue increasing to 62.7% in 2016. The dependence of life insurers sales generated from their banking partners will drive the growth of bancassurance. New initiatives from the Italian insurers to promote bancassurance and reduce their commission and expenses costs are also expected to have a positive impact on the popularity of bancassurance. As a result, the written premium generated through bancassurance is expected to increase at a CAGR of 2.3% until 2016.
Insurance agencies accounted for the second-largest share of written premium generated by distributing life insurance in Italy. The most important factor that encouraged the growth of agencies and bancassurance in Italy was their transparency. In the Italian life insurance segment, trust and long-term relationships are important for generating sales. The established reputation of banking companies and the role of insurance agencies in providing advisory information both build confidence among Italians regarding these channels.
In addition, agencies market share of the written premium generated through distribution channels is expected to increase from 22.8% in 2011 to 23.8% in 2016. The written premium generated through agencies increased from EUR9.29 billion (US$12.73 billion) in 2007 to EUR12.41 billion (US$17.27 billion) in 2011, at a CAGR of 7.5%. This figure is expected to reach EUR14.14 billion (US$19.68 billion) in 2016, after recording a CAGR of 2.6%. Italian insurers are also expected to promote e-commerce to reduce their commission costs.
Market developments
Generali plans to take full control of Generali Deutschland
12 July, 2013
Italian insurer Generali Group is planning to take full control of its management holding company, Generali Deutschland Holding, by purchasing the 7% minority stake.
Generali has agreed to buy a 3% stake in Generali Deutschland from a group of private investors, at an initial price of 105 ($137.34) per share, or a total consideration of 171 million ($223.6 million).
The acquisition of further shares will increase the company’s total shareholding in Generali Deutschland to reach 95%, which will enable the company to exercise its right and start the squeeze-out procedure for acquiring the outstanding 4% stake in order to take full equity control of the company.
The transaction is expected to close by the end of the first semester of 2014, upon which Generali will retain the entire net result of Generali Deutschland, 504 million ($659.4 million).
Mario Greco, the CEO of Generali, said: "The acquisition of the minority interest in Generali Deutschland Holding is consistent with our aim to have full control of all our strategic business units and is part of our plan to simplify the Group. This will be a value-accretive investment which will generate a return above the profitability target outlined in our strategic plan."
