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Are insurance CEOs on par with 21st century peers?: Time to step up

Source: Asia Insurance Review | Feb 2015

How does the (re)insurance CEO compare to peers from the other industries? Is the comparison even necessary? We canvass the views of six CEOs on this as well as what they see as the key issues for 2015.
By Benjamin Ang
 
It is no longer enough to compare an (re)insurer against its peers in the industry. Consumers have higher expectations as they get used to the service standards set by retail giants and banks, and lines delineating industries are getting blurred with even tech giants moving into the finance and insurance space. 
 
Hence, increasingly, benchmarks have to be set against leading companies in other industries. So how does the insurance industry compare to others?
 
Profile of the industry
In Forbes’ list of “The World’s Biggest Public Companies”, insurers have ranked well. In the top 50, there are Allianz (27th), AXA Group (33rd), and AIG (42nd). They ranked above more “sexy” companies in the likes of Google (52nd), Goldman Sachs (59th), UBS (79th), and Facebook (510th!). 
 
Yet the industry is still often seen as low profile, boring, and unappealing. And just comparing financial institutions alone, Mr Chua Seck Guan, Chairman of ASEAN Insurance Council, said in what must be a widely shared view, “Insurance has always been perceived as the ‘poorer cousin’ in the financial services industry. It pales in comparison with the glamour of banking.” 
 
But if insurers’ size and stature are being held in high regard and comparable to companies from other industries, why then is the industry in this situation? 
 
Profile of the industry’s CEOs
As the public face of the company, the CEO is the one flying the company’s flag or making an impression – or the lack of – in the public arena. There are many CEOs who are well known outside their industries and to the general public. For example, Ms Indra Nooyi of PepsiCo, who is well-known for her views on the challenges of managing her intense professional and personal demands that career women can relate to; and Sir Richard Branson of Virgin Group, who is famous for his larger-than-life personality and ambitious projects. 
 
Closer to home, Mr Jack Ma of Alibaba, despite being the richest man in Asia (together with Mr Li Ka-Shing, depending on share price movements), has also maintained his profile through sharing his insight on areas such as entrepreneurship, success, and even insurance.
 
But ask anybody outside of our industry to name an insurance CEO, almost all will struggle to do so. 
 
Nature of the industry
Some may say the lower profile of the industry is a result of the lower profile of the CEOs, but linking the two will be unfair and overly simplistic. 
 
“Some challenges are unique to the nature of the industry. Arcane concepts and language not easily understood outside of the industry; misunderstanding of the insurance industry value chain – reinsurance, insurance and broking; and the long term and long tail nature of most insurance are in conflict with a world where timescales are being shrunk,” said Mr Peter Jackson, CEO of Lockton Companies (Singapore). 
 
“Also, customers see insurance as a ‘need to’ rather than ‘want to’ purchase. It is easier for Apple or Microsoft to have higher profiles – people actually want to buy their products. Hence, despite the massive scale, the industry is a low-profile and largely misunderstood industry,” he added.
 
For reinsurance, it is an even taller order. “Because reinsurance is a B2B business, it tends to happen out of sight. It is a discreet part of the financial services sector that is a ‘quiet enabler’ for all other aspects of corporate financial life,” said Mr Franz Josef Hahn, CEO, Peak Re.
 
Better out of the spotlight
In fact, it is efficient in some ways, said Mr Hahn. “Because of the low profile, we have been very effective in protecting business and economic activity over the years without much government intervention. We do champion our industry, but we don’t need to bring it into the spotlight, so we can just go about doing well what we do.”
 
Mr Mark Newman, CEO, Catlin Asia-Pacific, also said: “Being largely out of the spotlight since the global financial crisis demonstrates just how well our industry is run, unlike some other financial services peers. Media spotlight and scrutiny is not always good news, and not always welcomed.”
 
“Since the global financial crisis, more young talent have sought to enter the industry, rather than banking or other areas of the financial services world. We haven’t needed to be high profile to attract and develop some incredible entrepreneurs and talent. This, however, should not translate into complacency as the search for young talent is continuous,” said Mr Hahn. 
 
Value creation matters more
For Mr Christopher Townsend, President, Asia, MetLife, it is critical for the insurance industry and its leaders to do more to raise awareness of the value the industry brings to economies and societies. “Leaders and their respective firms should ultimately be measured by the value they create for various stakeholder groups and the community at large.”
 
“In the Insurance industry, we have a nobility of purpose to provide valuable contributions to economic growth and social needs. We provide financial protection to individuals and families at critical moments. In addition, no government is able to provide fully for the retirement and healthcare needs of all of their citizens. The private sector therefore plays an important role in meeting the needs of society while lessening the burden on government coffers. Crucially, insurers are also the largest institutional investors in many countries in the world, contributing to economic growth and stability in both good and bad times.” 
 
“Such value creation from insurers is not always well-publicised or well-understood, and building awareness of these positive attributes should be the focus.” said Mr Townsend.
 
More than able
It is difficult to compare one industry against another, said Mr Newman. There are big personalities and influential CEOs who are respected and well-known within their specific industry, without the need for a high public profile. He cited the example of Mr Stephen Catlin, Founder and Chief Executive of Catlin Group who is the 2015 Insurance Hall of Fame Award recipient, a recognition bestowed by fellow industry leaders and peers for having made a broad, encompassing and lasting contribution to the insurance industry.
 
“CEOs in the industry have the same task as all CEOs, which is to grow the franchise and deliver value for the shareholders. And if you look at shareholder returns across the reinsurance industry compared with other sectors, we have done a creditable job,” said Mr Hahn. 
 
“One of the challenges that CEOs in reinsurance have to rise to, perhaps even more than any other industry, is the expectation that a shock to the system can come at any time. And this has to be built into the thinking especially at a time where the current reinsurance market cycle demands pressure to control the underwriting margin and seek optimal diversification, whereas shocks and dislocations in other sectors tend to take place at a much slower pace,” he added. 
 
More needs to be done
But at the same time, more can be done. Mr Roland Eckl, Munich Re Chief Executive for Asia-Pacific Non-Life (Australasia, Japan and India/Indian Subcontinent), said: “The entire (re)insurance industry needs to market itself better, since it certainly contributes a lot in terms of stabilising and protecting the economy and government balance sheets.
 
Insurance has a positive effect on GDP development, helps ensure lower government debt and a lower foreign trade deficit, and has other positive macroeconomic effects too, irrespective of a society’s level of prosperity.” 
 
“Since (re)insurance is such an intangible good, we need to work on enhancing public awareness of the insurance industry’s current contribution to the stability of our social and economic systems and of the knowledge and expertise that the industry brings in terms of risk management,” he added. 
 
Concurring, Mr Jackson said: “The industry is insular and does little to contribute to the wider community’s understanding of risk, prevention, and general business best-practice. Perhaps companies and their leaders don’t see the value in having a high corporate profile, but this is a fundamental mistake on our part.”
 
While Mr Chua said that the insurance CEOs “have been doing an excellent job in bringing positive attention to the industry by highlighting the industry’s pivotal role in the region’s economic and socio-economic growth as well as its sustainability”, he added that “there is still room for improvement whereby CEOs can create their names as spokespersons and leaders in their companies as well as for the industry”. Today’s technological advancement also offers low barriers for businesses and leaders to connect with the public and to stay ahead of the curve. “After all, it is a people-oriented industry, across all ages and backgrounds.” 
 
Beyond a standard management role
Customers and staff want partnerships with well-respected organisations. Insurance is no different, said Mr Jackson. “Insurance leaders need to understand that they are part of their company’s brand. They can have influence that goes well beyond a standard management role.” 
 
Collectively, this lack of “brand impact” also means that the industry misses out on opportunities to explain the value it delivers. From a talent point of view, a low profile also means a greater struggle to attract and retain high calibre talent. Moving forward, this is going to be a major problem in both mature and high-growth markets, said Mr Jackson.
 
Also touching on the need to move beyond a “traditional role” was Mr Chua, who is also the CEO of MSIG Malaysia.
“Managing uncertainty has always been a core competency for any CEO in an insurance company and this skill set has never been more valuable than in recent years with the rapidly evolving landscape in the insurance sectors of all the ASEAN countries,” he said.
 
But with other financial institutions and technological giants moving into the insurance segment, likewise, insurance companies have to continue seeking ways to work in partnership with other financial providers and non-financial industries in order to diversify insurance distribution channels. “So yes, this challenges (re)insurance CEOs to think beyond the traditional role, distribution channels and processes, whilst investing more in innovation,” he added.
 
Championing the industry
On what can be done, Mr Chua said: “There are countless initiatives that we can think of to bring positive attention to the industry. This is a platform where the industry can support a cause that is close to its heart, beyond its immediate stakeholders, with a strong belief of its contribution to the industry at large.”
 
Mr Jackson agreed that CEOs need to do more to bring positive attention to the industry to champion the industry and attract talent. “Not to promote themselves as just personalities. But insurance leaders need to have the courage to stand up and have opinions on the issues that strike a chord with our stakeholders. We do need to do more to demonstrate the gravitas of the industry, to show the value we add to our clients’ businesses, and to showcase how worthwhile careers can be built in our industry,” he said. 
 
Changes already underway
On the other hand, major changes are already happening. Mr Townsend said that the industry is not as traditional as perceived and companies are making advances by adopting new ideas and concepts. “Whilst the public may see insurance as a kind of traditional business, we cannot afford to be conservative in today’s business environment. Digital technology is quietly revolutionising how we run our business, and how we distribute our products and services to customers. Indeed, the internet and mobile devices are radically changing the way we engage and interact with customers.”
 
“Customer-centricity, innovation, digital capabilities and big data are therefore key focal areas that are being adopted and applied by a number of insurance firms. In our case, for instance, we are leveraging advanced data analytics, predictive modelling and behaviour economics to build deeper customer insights and customer-centric solutions. We believe such efforts will drive great improvements in lead generation, cross-selling and persistency. In addition, rapid advancements in new technology in conjunction with changes in demand also require insurers to be more nimble and entrepreneurial.
 
There is therefore much more focus on continuous innovation, particularly in areas that are ripe for disruption through the creation of new models for product and service delivery,” said Mr Townsend, illustrating the example of an insurance CEO with his pulse on technology and innovation.
 
Concurring, Mr Eckl said: “Today’s global economy is more dependent than ever on IT, the internet and data streams. This development presents new risks, for which CEOs have to offer new innovative solutions on digital channels.
 
Digitalisation is changing the industry and triggering a revolution, and there are significant challenges and opportunities along the entire value chain of insurance that affect not only the mode of economic activity, but also and more importantly, customer behaviour. Munich Re believes the improved possibilities in terms of data analysis and data resources offer enormous opportunities for the (re)insurance industry.”
 
With regard to CEOs’ public profiles, Mr Newman is of the opinion that there is not a need for radical changes. Instead, the focus should be on promoting the industry within the government sector as Asia still falls behind other regions in terms of insurance penetration and protection gap. 
 
“It is an area where CEOs should be shouting from the roof tops. Many industries and communities within Asia remain significantly under insured. CEOs must do better at engaging and challenging regulators and governments to identify and address risk and coverage shortcomings,” said Mr Newman.
 
Whether promoting the industry externally or internally, with the public or governments, one thing is for sure, CEOs will need to step up.
What to watch out for in 2015?

CEOs share their thoughts on what are the key issues for the industry this year.


ASEAN transformation
“The (re)insurance industry today is facing a challenging yet exciting journey with the transformational move planned for the ASEAN insurance industry. There is a fertile market for international and local insurance companies in Asia, but the first hurdle is the integration of this regional insurance market itself. 

Enormous opportunities and formidable challenges await the formalisation of the ASEAN Economic Community (AEC) this year. The ASEAN market of 10 Southeast Asian nations boasts more than 625 million people, and a combined gross domestic product of approximately US$2.4 trillion (in 2013), growing at more than 5% per annum. 
 
Overall, I am highly optimistic about our prospects for 2015, despite the recent oil price fluctuation. Global economic growth continues to improve, leading the (re)insurance players to spend more capital on upgrading, maintaining and expanding their infrastructure.” 
Mr Chua Seck Guan
Chairman, ASEAN Insurance Council
 
“Regulatory trade barriers”, avoiding rating “roller-coaster”
“For us and many foreign entities in the region, it is about making sure that we have the right licensing structure to enable us to have access to the business that we want. 
 
Recently, we’ve noticed a trend in what I would describe as ‘increasing regulatory trade barriers’. This restricts access to business for foreign companies in particular, as evidenced in some markets’ recent legislations and solvency regimes introduced. We have to question whether this a healthy direction for these territories and the industry in general, with the concentration of risk exposures locally that this could bring. 
 
The industry also has to be careful to avoid heading back to a rating ‘roller-coaster’ environment. There has been a lot of misinformation about the recent rating environment in the region, and our experience of the market pricing has been nowhere near as pronounced as reported or believed. 
 
The industry needs to be careful to avoid excessive price competition and wild pricing swings. Should a major catastrophe event occur, and they likely will, a pricing bounce too far in the other direction, is equally unsustainable.
Instead, the focus should be on the value of risk transfer and identification of dependable long-term claims paying partners. That has a lot more certainty and consistency for our clients.”
Mr Mark Newman
CEO, Catlin Asia-Pacific
 
Excess capacity, intangible risks
“Excess capacity is forcing down rates in many markets. Whilst there is considerable room for the insurance industry to grow in Asia, insurance capacity at present is increasing faster than customer demand. This is bound to affect rates and margins with the potential for a swing in the opposite direction.
 
Also, the need to address clients’ intangible risks, particularly reputation and cyber. The immediate risks facing clients today are less about physical risk and much more about intangible risks arising from hacking, IT failure, media coverage and reputational damage. The insurance industry needs to remain relevant to the issues clients are facing today.” 
Mr Peter Jackson
CEO, Lockton Companies (Singapore)
 
Economic uncertainty, AEC potential
“Economic uncertainty remains a key issue in 2015 in Asia as a whole. The Asia-Pacific (APAC) region is entering 2015 amidst significant economic challenges. China, Asia’s largest economy, is facing some moderation in growth. Meanwhile Japan, Asia’s second largest economy, slumped into recession in the third quarter of 2014. Economists have revised down forecasts for several economies in the region.
 
 However, we still see promise across all of our key markets, from India, China and Southeast Asia, where life insurance penetration rates remain low among a burgeoning middle class with increasing awareness of the benefits of insurance, to the more mature markets of Japan and Korea, where structural and financial sector reforms will pave the way for new opportunities for insurers.” 
Mr Christopher Townsend
President, Asia, MetLife
 
Liquidity abundance, increasing competition
“Understanding and assessing the risk exposures from economic factors will continue to be one of the key issues in the industry in 2015. 
 
Abundant liquidity, made available by central banks all over the world, is increasing competition between existing players, while pension and hedge funds continue to enter the (re)insurance market. The environment for investors therefore remains difficult, in particular because of unexpected political decisions. 
 
While the persistent low-interest-rate environment has an impact on the industry’s investment results, Munich Re’s included, our strategy remains focused on achieving core earnings in insurance, rather than from risky investments separate from our liabilities.
 
The environment is a challenging one, but it offers numerous opportunities and chances for the CEO if such challenges are approached in a more innovative way than in the ‘old’, traditional fashion. This time could mark a significant change for our industry. We need to keep on adjusting our business models to the new environment, and especially to rapidly changing customer behaviour.” 
Mr Roland Eckl
Munich Re Chief Executive for Asia-Pacific Non-Life 
(Australasia, Japan and India/Indian Subcontinent)
 
Dwindling opportunity to release reserves
“The key challenge for 2015 will be to hold true to the need to deliver strong service to clients while delivering stable returns to shareholders, against a backdrop of a challenging rating environment and dwindling opportunity to release reserves. 
 
It’s the challenge and courage to deliver in a changing world.”
Mr Franz Josef Hahn
CEO, Peak Re

 

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