An intensively competitive insurance sector has everyone in the industry bracing for choppy waters. So how is a CFO turned broker chief planning on weathering the storm?

Insurance & Risk Professional: Moving from CFO to Broker and Agency Chief General Manager is a change of gears. What have the first months been like?

David Hosking: The first six months has been getting to know this channel from the inside out. We’ve got nearly four hundred staff in the Broker and Agency Division in Australia and New Zealand. So there has been a lot of talking to our staff.

But equally as important, if not more so, has been getting out and talking to brokers, and understanding more about what we do and the services we provide from their perspective, and I’ve found that very interesting.

A lot of the brokers I’ve been talking to really want to develop strong partnerships with the underwriter, and they were really open and direct with their feedback about what we’re really good at and what we can be better at. Complementing that, we also undertook some detailed market research on this topic. So a combination of what the brokers were telling us, plus that market research, has given me some good ideas that we’re implementing now.

IRP: What has been implemented so far?

DH: It’s all to do with our service offering. There is a lot that we’re very, very good at – the things you need to be good at, around our conditions and cover, our claims, the financial viability of Allianz. We’re certainly top quartile in that.

But there are probably a few areas in our service and customer relationships – both are big differentiators in this industry – where we’re working on being even more consistent and responsive.

IRP: There has been plenty of talk in the past six months about how competitive the market is and the effect it is having on rates. How is that playing out for Allianz?

DH: The cycle is tough. There’s a lot of capital and a lot of that capital’s finding its way down to Australia. Investing in insurance is probably better than investing in jurisdictions around the world where you’re getting zero or negative rates of return. Plus the domestic insurers have been quite profitable over the last couple of years, so naturally you’re going to see re-investment in growth.

So that means at best flat, or even negative, average premiums. In fact, the latest APRA statistics show that for the commercial classes, premium volume has gone negative.

The way Allianz navigates through that will be the way we navigate through the normal environment. Allianz needs to be as focussed as ever on our relationship management, service offering and responding to our clients’ needs. We also need to stay disciplined with our underwriting: risk quality has still got to be king. That doesn’t change whether the market’s hard or soft.

David Hosking quote

IRP: So that means maintaining margin?

DH: Yes. But having said that, to quote that old cliché, you can’t shrink to greatness. We need to also focus on growth.

It goes back to that first thing: to succeed in this market we’ve just got to be a little bit better on our service and customer relationships. We also need to be innovative in working with brokers on some alternative product offerings for their clients so they can maintain their top line as well.

IRP: What’s on your wishlist for the year ahead?

DH: I think we would all wish for a hardening cycle; it’s difficult when you work your guts out and at the end of it all the best you get is a slight increase in growth. But having said that I don’t wish for the sort of event that drives a hard cycle.

But we’ve got a couple of really interesting strategies that we’re kicking off. I don’t want to reveal too much about it but Allianz has incredibly strong global expertise in some areas where we are a little undercooked down here.

One of the areas where we’re starting to use more of that expertise is in the rural space. Through one of our specialist agencies we recently launched a yield protection cover for crops. It’s a full multi-peril product, covering 11 perils. The average farmer doesn’t know what’s going to happen to his crop when he plants it, just offering two perils is not sufficient to protect him, so that will be quite useful.
Further, we are revising our farm pack wording to ensure it offers the best covers for the farming community.

Allianz, globally, with all their technology and data, has been crucial in getting something like this out there.

IRP: Allianz is a frequent winner of diversity awards. Do you think the wider industry is taking the challenge of achieving diversity seriously enough?

DH: I guess you could look at the industry as it sits now, and there might be an appearance that it’s lagging a bit. But I think that probably would be doing a discredit to a number of participants, brokers and underwriters alike.

For me personally, it’s always been about the fact that to be the best in this industry, you have to have the best workforce. Consciously or unconsciously, if you are excluding parts of the available workforce, you’re doing yourself a disservice in achieving this goal. Your workforce should in some ways mirror what modern Australia looks like, not some sort of Edwardian England.

So you want to make yourself accessible, as an employer, to every gender, race, religion – the whole shooting match. So you have to be positioned to do that. You want 100% of the available workforce interested in being here. Otherwise, you’re doing your workforce a disservice and you’re doing your customers a disservice.

And I think once people get that, the actions can follow quickly. What we’ve done here, and it’s transportable to any number of businesses, is focus on structured programs to make diversity happen. Those programs have been focused on things that have traditionally been barriers to diversity. It’s things like needing flexible work systems to allow it to fit in with lifestyles, or the gender pay gap.

The other part of that comes down to opportunity. Once you’ve got people onboard, there has to be the next role for them. Sometime that pops up immediately, sometimes you have to wait for natural attrition to do its work and sometimes you just have to create the next opportunity.

Once you’ve got the structured programs in place you have to work to ensure it has been accepted by leadership at local levels. If at some level that’s not taken on board, then it’s going to fail. It’s a hard thing to change overnight, but if you can get the programs right, and you have the workforce seeing and believing in it, you will open yourself up, and I think we’ve been quite successful in that space.

IRP: What do you view as your biggest challenges in the year ahead?

DH: The declining premium pool is going to present some challenges. It will force us more than ever to think about what we do. We will still be seeking opportunities, but not at the point of losing our discipline. Everyone in the industry will be facing this challenge. It also depends on how long it goes on. Is it shallow a cycle or is it something a little bit deeper than that? We don’t know.

The second one will be technology. There are a lot of ideas out there but we need to make sure that we don’t lose our way, and let ‘man become machine’. We really want to make sure that we still are offering that sort of personal touch.

IRP: As a former accountant, what advice do you have for brokers looking to thrive in the current conditions?

DH: Their challenge in this market is very similar to ours. It’s competitive, and the customers know this too, so they’re looking for the best possible deal. And like any consumer, they want the highest quality good with the best service at the lowest price. Everyone’s looking for that Holy Grail.

To me it’s about focus. You’ve got to focus on the customer like you never did before. You’ve got to be really, really clear what your proposition is to that customer.

If it is service, for example, what part of service is important to that customer, and what can you do better than the other guy? So, for us, why would a broker choose us over one of our competitors in service? What do we need to be achieving?

That’s where brokers do their best work, when they’re providing advice and advocacy. So we need to be there for that.

I think the other bit too is that when the average premium is down but you’re still selling the same amount of units as you did yesterday, you’re still doing the same amount of work. You’re just collecting less average revenue for it, so you have to be disciplined in your own business.

So focus on your discipline, both internal and external. You’ve got to be as disciplined as ever on productivity, expense management, cash flow management. All of those things come into play. And then thirdly, and back to my point on people, you can’t do anything if your people don’t like working for you, so you’ve got to make sure you’ve still got the heart and soul of your employees.

You need them to be fully engaged with you, believe in what you’re standing for and be willing to run that extra mile. There will be times in this cycle where they will need to put in that little bit extra.

IRP: Some SME brokers are seeing direct offerings erode their client base. How can insurers help brokers prove their worth?

DH: If you look at the SME market, you’ve got more than two million businesses with up to 100 employees. That’s two million potential insurance policies right there. So to me it’s a fascinating area.

It’s also an area that Allianz is investing heavily in. We’re spending more than $20 million to rebuild our whole SME product suite, both front-end and modular product design. This is a once-in-a-generation opportunity to rebuild that segment. We’re aiming to launch in mid-2016.

Further we have developed a model where Allianz can provide its award-winning contact centre and online technologies to brokers, so they can leverage from our scale.

The question of where those two million potential policy holders are going to buy their policy from is really interesting. I think back to the early days in my career when I was in chartered accounting; my client base was SMEs and they wanted tax and accounting services but also advice. And they were happy to pay for that advice.

The same logic applies in insurance. People still need advice. And I think that’s where brokers do their best work, when they’re providing advice and advocacy. So we need to be there for that.