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On a quest to innovate: Mutual & Federal

01 April 2011 FAnews

In March this year, short-term insurer Mutual & Federal – a member of the Old Mutual Group – celebrated 180 years in the South African insurance industry with solid 2010 insurance results. FAnews spoke to newly appointed managing director, Peter Todd, to

In February 2010, after almost four decades as a listed company, Mutual & Federal de-listed from the Johannesburg Stock Exchange. The de-listing followed the successful acquisition by Old Mutual plc of all Mutual & Federal shares not already in its handsof minority shares in the business, in late 2009. Further entrenching a new direction for the future of the company, Old Mutual appointed a new managing director from outside the Old Mutual stable.

“This was a deliberate decision by Old Mutual,” says Peter Todd, the man who took over the reins from departing chief executive Keith Kennedy on 1 February this year. “Old Mutual recognised that the business needed a change in culture. Bringing someone in from the outside is much more of a catalyst to culture change than promoting someone internally. I come in with no baggage and no internal history – a clean slate, so to speak.”

Perfect timing

Peter couldn’t have taken over the Mutual & Federal reins at a better time. Profits increased by 27% for 2010, and the underwriting margin strengthened significantly. We asked Peter what had contributed to the impressive underwriting result and whether we could expect more of the same from the group through 2011.

“The drivers behind the improved underwriting margin include the relatively benign claims year, particularly on the corporate book, a healthy book of existing business and a higher contribution industry-wide from specialist lines, where margins are traditionally higher than general business. We also escaped the large corporate fire claims that dominated the short-term landscape in 2009last year. Our 7.6% underwriting margin lagged the industry slightly because our UMA business – started last year – made a very small contribution to the overall result. We are poised to improve on this performance next year as we maintain our leading position in the short-term insurance sector, embracing innovation and providing value to all our clients,” says Peter.

The name of the game: innovation

Innovation is critical to survival the insurance game, and Mutual & Federal intends positioning itself as the market leader in this respect in the coming years. “Mutual & Federal will shift up a gear on the innovation stakes. We will focus on innovation and on exploring ways to make innovation and- inventive thinking coupled with customer-centricity part of our DNA. For example, we are launching an intranet site incentivising our people on the front lines to bring us fresh ideas. We want to be the company that brings exciting new products to the market first,” says Peter.

Implications for brokers

Mutual & Federal is heavily dependant on the broker distribution model, with as much as 95% of its business derived through this channel. We asked Peter what changes insurance brokers could expect during his tenure. “Insurance brokers play a significant role in the industry. Personal lines, commercial, corporate – the higher you move up the chain, the more valuable a broker’s knowledge and insight become.”

“The biggest challenge to brokers, and to Mutual & Federal, is the ability to present the value proposition to the client. We need to look at how we deliver our product to the broker and ultimately to the client, because we have to do that as cost effectively as possible. By reducing the cost of delivery, we can pass on increasing benefits to the end-insured, through the broker, thereby competing on a pricing basis with the direct market.” Peter firmly believes in the value and convenience of using an insurance broker, adding that he chooses the broker route to meet his personal insurance needs.

Sweeping changes

“Mutual & Federal is one year into a major step change programme started under Keith Kennedy. This programme looks broadly across all aspects of our business, from broker servicing, to capital efficiency, to culture change, to information technology systems and platforms. The bottom line from a broker and end-customer perspective will be our focus on efficient and effective delivery of product and services.”

Going direct

Peter observed that recent industry surveys suggest the broker force is coming to terms with the coexistence of direct and broker-originated insurance. “The insurance landscape has morphed into one where the direct consumer can be seen as a separate market segment. By entering this space an insurer is not taking business away from the broker, but rather servicing a different segment,” he says. “We launched iWYZE last year, our first foray into the direct market… but that doesn’t mean we are taking our focus off the broker – absolutely not! It simply means there’s another segment out there that we want to capture market share in.” The broker’s challenge remains to demonstrate value to the client.

Regulatory challenges

One cannot have an insurance conversation without touching on the thorny issue of regulation. “The whole regulatory environment is a challenge,” says Peter. “On the one hand we have the regulatory exams which focus on improving the standard of financial services practitioners. On the other hand, we’ve got legislation such as the Consumer Protection Act which will impact the insurance industry 12 months from now. The industry has to move away from draconian policy wordings to plain language or face serious legal implications!

“The existing precedent is based on specific policy wordings that are well understood and have a defined impact in terms of how they are interpreted from a claims perspective. When we convert to plain language we have to recreate these precedents from scratch. There are certain indirect consequences stemming from the Consumer Protection Act, too. Suddenly our clients are exposed to a greater degree of liability, which means we have to underwrite a greater potential risk exposure without a track record. It will take a while to establish the correct level of premium for the risk covered.”

Peter fires off a few more regulations that will change the way insurers do business: “The Conflict of Interest regulations have already been implemented and we’re getting ready for the Insurance Laws Amendment Act, Treating Customers Fairly (TCF) and the new binder regulations. And on top of that, we have SAM, which is equivalent to the Solvency II requirement.”

Peter said the compliance and regulatory environment was definitely placing pressure on smaller brokers and brokerages. “In the past, a number of these brokers were relying on the insurer to subsidise some of their compliance costs, but this is no longer possible under the Conflict of Interest regulation. As a result, we expect some consolidation in the market place, though this might take the form of brokers organising into groups, maintaining their independence, but leveraging off a common base.” Mutual & Federal took the lead in assisting staff and brokers with the regulatory exam requirements.

Remaining calm under pressure

The short-term insurance industry is fast-paced with insurers hard pressed to improve underwriting margins and new business. We asked Peter how he remained so calm under all the pressure. “Everyone comments that I appear very calm, though I’m not sure what this implies. My style is quite different to what Mutual & Federal has been used to traditionally. A big part of the change for this business is the culture change, and that starts at the top! My approach is to engage people more, whether among Mutual & Federal staff, our broker force our our customersand even away from the office,” says Peter, who is an avid sportsman and enjoys spending time with his three young children.

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