Stephen Hester, RSA Group CEO, talks about weathering the new challenges facing the global P&C industry such as changing customer expectations, disruptive technologies, climate change etc. Excerpts from an interview during a recent visit to Oman
The global insurance industry is going through a period of great transition due to changing customer expectations and the advent of disruptive technologies. According to you, what are the latest trends in the sector? Please talk about the new challenges facing the industry as well as the new opportunities.
It’s interesting to observe two contrasting perspectives in the transition of the global property and casualty (P&C) insurance industry. The first contrast is that our industry deals with risk, and the world has always had risk and will always have risk in the future. Today there are many industries which maybe one day, the world will no longer have any need for. But the world will always require the services of our industry. In that sense, our industry changes only very slowly, because the basic demand is always there for what we provide. The total of risk is very large and keeps us in business forever, but its nature is changing and evolving. For example, today the world is worrying about climate risk and cyber risk. Conversely, automotive crashes are reducing as road safety has improved a lot in recent years.
The other thing that is changing is data science. Insurance companies were the world’s first data scientists. The industry arose around 300 years ago out of the Great Fire of London. The whole idea was that if you could collect data from many different houses on how many were likely to have a fire and add the data together with a model and produce probability, you can insure against it. And throughout the last 300 years, what actuaries have been doing is just data science: they gathered data, processed it, drew conclusions and applied them. That was not such a recognized activity in the last 300 years; but today one of the most important trends in the world is data science. The way the world is really being driven into new areas is through the power and the ability to collect data more efficiently, process it, draw conclusions and apply them. That is behind the rise of the Internet, the artificial intelligence and all the new trends governing the world today.
Although the insurance industry in some ways is seen as slow and boring, it’s the centre of data science. And, every year we are being given new tools to intelligently collect information and data about risk, drawing conclusions and helping our customers by applying these conclusions.
All our actions at RSA fall into three categories: how we serve our customers better; how we make our products better, more intelligent in terms of underwriting, pricing and claims; and how we become more efficient. And the common denominator across all of these is technology and insight. If I take a Middle Eastern example of customer service advances, we have launched our digital motor platform in the UAE, where you can buy motor insurance from us on the Internet, which is of course how customers want to do things in increasing numbers.
When it comes to climate change, we are putting more resources into collecting climate data, understanding with much greater precision the areas that are exposed to flood, wind or other perils so that we will be able to offer risk management advice and price risk correctly.
How has been the year 2019 for RSA Group so far? How is the Group negotiating the changing macroeconomic, political and competitive environment in its different markets?
RSA is having a good 2019, building on a strong track record. If you look at the last five years at RSA, we have been doing a great deal of work to make sure that our businesses are strongly focused on the areas where we can win, specifically P&C, where we want to be specialists.
We also have an ambition to be best-in-class. Our objective is to be the best in each of our markets. In every one of our businesses around the world, we are aiming to be the best. We are looking to see where the best performance lies and to understand the gap between what we do and what the best does. We create action plans to close that gap, and it is this that has made RSA more successful on a global basis.
In fact, three of the last four years have been the best three underwriting years for RSA group in our history. But I would say the process is nowhere near finished, because even though we are better than before, we can be better still, and so right across our Group we are focused on continuing to improve.
We are trying to serve our customers better all the time. Customer expectations are changing rapidly due to the Internet, more information and more sophistication and we must improve against that backdrop.
Another area we are doing a huge amount of work is our product design. As I mentioned, the insurance is really data science. The world is moving fast, so we must keep changing in order to stay at the forefront of product design, underwriting and pricing. And finally, like every business, we have to become more efficient, our customers want good value for money so we must keep our costs down and technology is enabling us to do this.
Can you talk about your strategy and action plan for the post-Brexit European market?
On a personal basis, I care a lot about the subject, but on a professional basis, as the CEO of RSA, I can say that Brexit is not a big deal for us. It’s a big deal for the UK. One reason is that around 75 per cent of our business sits outside the UK. In all our international markets, we are doing business locally, in local currencies, with local people and with local regulation. And therefore, Brexit is not affecting us, as we are not importing and exporting goods from the UK.
Insurance as a product is also fairly resilient to economic change. So, in that sense, whether there are positive or negative consequences, insurance is less affected than some other more sensitive industries. Insurance companies might not be directly affected by Brexit, but if there is financial market upheaval that impacts everyone.
Are you expecting more consolidation in the global insurance market?
I think there will be more consolidation in the global insurance market because it has quite slow organic growth, the industry is mature, and the world economy is growing only slowly. However, I think the consolidation will be more about in-market consolidation and not so much about diversification. I don’t think it will be a dramatic trend. It will be a deal here, a deal there and a deal somewhere else. If you look at the top five insurance companies in I think most markets today, it’s almost same as the top five insurance companies ten years ago. In most markets, the changes are quite small. Ours is an industry which will continue to offer a range of competition for our customers and where the traditional companies like RSA, if we manage ourselves well, can succeed for many years into the future.
How is the industry gearing up for the challenges posed by the climate change and its possible repercussions on the global market?
Property risk is the biggest single risk that insurers deal with and climate change affects this risk the most. All insurers are putting more work into climate change modelling, so that we can price risk correctly and we can advise our customers properly.
In addition, one of our big specialty segments is renewable energy. We are one of the biggest insurers in the world in renewable energy, which is of course one of the effective solutions to climate change. We are probably the world’s leading insurer of the wind power. We do other kinds of renewables, but wind is our biggest market share.
And thirdly, we are trying to be responsible citizens ourselves. And so, as a company, we have climate change targets and investment targets. We are trying not to invest in the word’s most polluting industries. Insurers do not create much pollution themselves, so this is a small contribution. I think our main role is around managing the risks of climate change and providing insurance products that help protect people against the effects of more extreme weather.
How is your Middle East market faring, compared to other regions?
Our business in the Middle East is excellent. We are doing well in each of the markets we are in, especially in Oman and the UAE. We are already amongst the best insurers in our specialty areas. Our financial performance is strong. We have good client acceptance and our businesses here in the Middle East are taking advantage of the knowledge and expertise we have developed in other bigger markets like the UK or Canada. We can really give our clients here the advantages of our international expertise, delivered in a local way, with local company, local people and here in Oman with a local stock market listing. And that combination of international strength and expertise with local delivery seems to be a good formula for us in the Middle East especially as many of our competitors do not have that international angle.
