QBE CEO shares ambitious plans

It’s been a big 12 months for QBE, with much attention being paid to the firm’s offshoring initiative. Australia and New Zealand CEO Colin Fagen tells IRP what’s next, and how they intend on winning back the coveted NIBA General Insurer of the Year trophy.

James Chalmers: There has been plenty of change for QBE in the past year. have you been satisfied with the results of the offshoring strategy?

Colin Fagen: We have been very happy with how the Group Shared Services Centre (GSSC) has performed.

The importance of this initiative is that it creates scalability for growth in the future, and it’s helped to create a base for uniformity and consistency in our service delivery.

That scalability will allow us to continue to expand our business on a global level by offering consistency across the major divisions throughout the world. This consistency is going to continue to evolve in the future.

However, any change of this magnitude has teething issues and it takes a little while to get through those. Overall we are very happy with how this has progressed.

This is a significant and complex program. To introduce this amount of change, with growth, on top of a very good profit result, suggests the team has performed extremely well in the past 12 months in Australia and NZ.

 

JC: Can you see your competitors going down a similar path?

CF: A significant number of Australian companies and our competitors have these types of operations – it’s just not discussed often in the Australian market. If you have a look through a list of larger Australian organisations, the majority of them have similar mechanisms in their business.

The other thing to remember is that QBE is a truly global company. We have always had businesses throughout the world.

We have been in Asia for more than 120 years and we have been in the Philippines for over 15 years, so in our mind this is just intelligently using our global footprint.

 

JC: Last year was the first time in more than a decade that QBE was not named NIBA General Insurer of the year. how disappointed were you to lose that?

CF: You’re always very disappointed to lose something as significant as the NIBA Award.

However, I think if we were going to lose, that was the year to do it.

We had so much change and we recognised there was risk involved but the strategic importance far outweighed this.

What we have observed in the Australian market the last few years is significant price rises being pushed into the market.

We know that we can’t keep doing that for the general population and it’s attracting the attention of consumer groups.

We have to establish foundations in our business that enable price rises to match inflation for the next few years.

Therefore, we believe we are creating a business that does not need to ask for price rises above inflation.

Our combined ratio [of claims and expenses] sits in the 87s, which is very good. If we achieved that result every year, with stability in pricing, then our stakeholders would be pleased.

As we go into the next couple of years, it is more important for our clients that we produce stability in the underlying book.

If you have a look at our various portfolios there are very few individual products that we are concerned about.

colin

JC: Is there a game plan to win back the NIBA title?

CF: We’ve completed a lot of the change that we wanted to undertake and we still have extremely strong relationships [with brokers]. I think it’s forgotten that we didn’t run 22nd; we ran second, even with that level of change.

More importantly, the intermediary market is core to QBE and I believe a number of changes we undertook are aimed at helping to assist and protect this market for the future.

Intermediaries are being attacked by direct players and I think our service offering and how we’re trying to complement intermediaries’ objectives are recognised.

 

JC: By protecting them, you mean delivering better premium pricing?

CF: To a degree. Intermediaries need to be able to compete on price – that is just the reality.

There is obviously value in the advice of brokers but there is still price sensitivity for everybody in small businesses.

What is particularly important in this change is that, as we grow, we will be able to bring more economies of scale into the business, which will help us compete on price.

It is often discussed that this is a cost reduction strategy only, however this is not correct.

The strategy is very much about consistency and predictability of service. This includes claims and underwriting.

Already we’re getting feedback in parts of the business that we’re able to turn around quotes at a much faster rate.

We have the opportunity to win business through faster turnaround of quotations on what we describe as negotiated products.

Our turnaround is faster than we’ve ever had before.

I expect those attributes to continue to build in all areas of our operations. Our core business is in underwriting, claims management and distribution – it’s not running finance teams, IT teams or HR teams.

These are the highly valuable back office functions that are scalable and efficient, that we need to align to the core to maximise the opportunity of what QBE can produce in the market.

 

JC: Last year you sponsored inaugural NIBA College student of the year. Why was that?

CF: We are the biggest Australian insurer and third largest in the local market. We see it as part of our contribution back to the industry that we should be helping develop youth in our industry, in both the insurer and intermediary space.

We do this through a number of different programs.

We have the eQuip program, where we sponsor young people coming through the industry in all states around the country.

That is just a part of what we should be doing as a major industry participant.

All the large players have an obligation to the industry to foster the development of the next generation. Having more effective and high quality people in the intermediary and underwriting channels means we have greater opportunities in the market as a whole.

The government has to ensure they design a financial system that assists Australian businesses and does not isolate them from the rest of the world.

JC: Where do you see the big opportunities for QBE?

CF: Focusing on our intermediary channels, and the service delivery and relationship management aspects we have with all our different intermediary groups, is particularly important. It is at the core of our business.

QBE is broad based with respect to our product range, so if the entire portfolio grew by the same percentage I would be comfortable.

I don’t really see the need to grow in any particular area of our business and being broad based creates stability through diversification.

We have a good mix between short and long tail classes and, as interest rates pick up in the next period, long tail portfolios potentially increase in value.

 

JC: Are there any challenges that stand out for QBE?

CF: The biggest challenge is probably the compound regulation that the industry faces, which is important for the whole industry, not just QBE.

We have the Financial System Inquiry underway in Australia and it’s important that the industry takes the opportunity to influence the future design of our financial system.

The inquiry needs to discern between insurers and bankers; sometimes we get ‘lumped’ in together.

 

JC: Does QBE have a wish list?

CF: I think it’s important that our government and regulators see that good Australian businesses can compete on an international scale. QBE is a prime example of this, being Australia’s largest insurer.

The government has to ensure they’re designing a financial system that assists Australian businesses and does not isolate them from the rest of the world. We should all keep in mind the global picture. In some areas, being the most heavily regulated country or the first to be regulated isn’t necessarily a positive.

 

JC: Do you think there are any underutilised opportunities in the market for brokers?

CF: A good opportunity for brokers is their ability to cross-sell throughout their client base.

There is a very wide product range on offer through intermediaries and what we find from time to time is that brokers haven’t maximised cross-selling opportunities.

It’s about gaining increased share of wallet from an individual customer and providing exceptional service.

I don’t see any particular products that brokers are getting poor penetration with, however we are observing the direct players continuing to creep up into the bottom of the small-to-medium market, so it will be important that together we are designing strategies to defend against this trend over the next couple of years.