The problem goes deeper than Group Schemes
When Mutual & Federal (M&F) announced their half-year results to 30 June 2008 they also told shareholders that Old Mutual would be selling its entire stake in the short-term insurer. This news was hardly surprising given Old Mutual’s attempts to negotiate a deal with Royal Bafokeng Holdings toward the end of 2007. Besides, the latest results are far from impressive.
Chief executive officer, Keith Kennedy, had to tell shareholders of a number of initiatives to ensure future profitability. Top of these was a decision to cut ‘unprofitable’ group schemes. Kennedy announced that the group had closed a number of schemes where the claims ratio exceeded 75%. This was one of a number of changes which would help the company bring its underwriting margin back to acceptable levels in the coming half-year.
A number of FAnews Online readers have commented on this news – and today we share some of their views and concerns with you.
Group schemes can work; but
The first observation is that group schemes can be operated profitably provided management has tight control of the business. One FAnews Online reader notes that you cannot simply blame the group scheme for the knock in M&F’s bottom line profits. “Insurance underwriters who favour group schemes and monitor them well (the broker) with tight controls have been successful. The problem with insurers is their service and delivery has deteriorated so much in the past 12 years that brokers have had very little option but to share the underwriting and administration cap along with them in order to deliver to the client.”
This reader felt that simply blaming group schemes for M&F’s current mess was unacceptable. Conservative management should get equal billing with the elements and the broker when apportioning blame.
No surprises here – warning signs were simply ignored
Another reader was not surprised by the announcement: “That some of the group schemes business was not profitable came as no surprise. The red lights have been on for a long period now; not only for M&F but for all role players. Most of these schemes are run on policy management systems where the insurance companies have no insight on what is being placed on cover and at what premium-rate.”
This is an interesting observation given M&F’s oft repeated promise of ‘state of the art’ information technology systems to assist in running a profitable business. We will have to wait and see whether the expenditure on new information technology will prevent similar problems in the future.
You can drop staff; but don’t let service levels fall
A number of our readers noted that service remained an essential part of the relationship between the insurer and the insurance intermediary. Many felt that M&F had been sliding in this department in recent times. And that raises questions about the company’s decision to cut its staff complement. “The problem is M&F have failed to look for the value in the brokers who can make them a profit. Focussing on the ‘negatives’ and getting rid of staff will prove a weak solution.” It looks like M&F will have to take care not to ostracise more of its business partners going forward.
And for those insurers out there who are struggling. Here’s the easy guide to making a success of the short-term business: “The secret for insurers, intermediaries, brokers and clients who want to run a profitable portfolio is to work on the insurance company’s policy management system and to work together as business partners on a constant basis to assure that multi-claimers being identified and eliminated, the scientifically calculated premium being collected by the insurer’s system, discounts being cut back as claims occur, etc; in other words a joint venture to manage the portfolio jointly as partners.”
Editor’s thoughts:
Steering an insurance company in today’s turbulent economic times is a bit like guiding an oil tanker through a sea full of ice floes. Management can identify threats and take actions to avoid them; but cannot immediately determine whether the corrective action will steer the business out of harms way. Would changes to management approach have been more successful than cutting ‘unprofitable’ group schemes? Add your comment below, or send to [email protected]
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