Low valuations and big cash piles at UK and European groups open the door to agitating shareholders
Agitating investors see that with transformation procrastinating insurers offer good investment opportunities.
“Nobody pushes us harder than we do,” Aviva chief executive Amanda Blanc told the FT last month. “We will constantly be pushing for the organisation to continue to improve, we know it has underperformed in the past, we recognise that and we want to make the performance better,” she added. “We didn’t need Cevian to tell us that RSA had an expense issue and had to therefore improve its productivity,” said Scott Egan, chief executive at RSA’s UK and international business, who has been at the group since 2015, shortly after the activist joined the shareholder register. While productivity goals can be obvious, reaching them is the important bit, he said. “The world is littered with good PowerPoint decks, but the execution is what differentiates.”
I could not but help link this with recent commentary on why insurers are behind in the digital transformation and maturity stakes: -
Patrick Kelahan offered interesting insights and some empathy as to why insurers procrastinate when it comes to transformation and innovation.
"Can digital maturity provide retrofitted benefits for tenured customers? If the foundational policy data are outdated, incomplete, or inaccurate, are there benefits for a carrier (or client) to apply leading-edge tech to claim handling?
What are the financial advantages to carriers being early adopters of digital service methods if legacy process liabilities hinder the optimal application of innovations?
Can carriers avoid the 'effect of the quarterlies' that result from impatience in terms of leadership looking for immediate bottom-line effects from application of digital methods?
In stating the obvious insurance operations are process-driven, heavy in a stew of data, and subject to significant pressure due to the pennies on the dollar environment in which the industry functions.
Outside of ops from the ground up (Insurtech full ops) it's hard to effectively integrate significant digital operations so there remains strategic resistance to retooling a carrier's PAS, CAS, or CRM.
Bionic/digital maturity? Not the insurance industry's leading attribute.
Sure is food for thought for carriers that can implement a scaled innovation plan that is accepted as a multi-year, operation-wide initiative. "
My reply was: -
The factors you mention are constraining real innovation and transformation. Nevertheless they are issues in the minds of departments heads. the C-Suite and Central IT spending circa 80% of budgets and time in just maintaining current core systems. Technology vendors often ignore these challenges for incumbent insurer's technology buyers. Plus transformation is about culture, strategy, vision, competitive pressures & technology just a means to and end.
That does not change an unpalatable fact for incumbent insurers eg
Many UK auto insurers do not make money out of premiums and investment income but out of add-ons like premium finance and selling claimant's data. Feb 2022 this will be restricted by the regulatory authority the FCA.
Meanwhile a stack of well-funded full-stack auto insurtechs with money, ambition, new technology are targeting market niches. Combine outdated business models & new competition & incumbents must change.
The successful will know what to prioritise and ensure short-term technology procurement enables long term transformation. More a technology nutritional plan than food for though Patrick.
The combination of agitated investors and competition from full-stack, well-funded and scaled-up insurtechs that are successfully attacking market niches may well be the perfect combination to elicit positive change.
What do you think?
The slow-moving beasts of the insurance sector are being targeted by activist investors betting that a pandemic knock to valuations and years of overexpansion have made them vulnerable.