Ooh, aah, Sean McGrath: at the helm of the steadiest ship in the stormy insurance sector
Sean McGrath is the new CEO of Allianz Plc. He spoke to Sarah McCabe about the crazy prices of the boom and fending off Google and Amazon
Published 12/06/2016 | 02:30
It's been a bad few years for Ireland's insurance industry. A succession of serious mistakes (at Quinn, RSA, Setanta and FBD) reflected poorly on the regulator and cost shareholders and taxpayers hundreds of millions.
The impact of under-pricing in the past, a low interest rate environment, rising claims costs and regulatory changes have pushed up the cost of premiums across the board.
Meaning good-natured Carlow native Sean McGrath has taken over as chief executive of Allianz Plc at a tricky time.
"There's certainly been a lot of turmoil in the industry," he says over coffee at the company's light-filled offices in Dublin 4.
Allianz is one of the biggest insurance companies in the world. Listed on Germany's DAX, it is 125 years old with a turnover of €125bn and 83 million customers in around 70 countries. McGrath runs its Irish property and casualty business, responsible for 650 employees. The group has other Irish operations too, employing around 1,450 people in total in this country.
He has three decades of experience. He began his career at the Insurance Corporation of Ireland (ICI) in 1983 and spent 10 years there; he qualified as an actuary in 1992.
"I think I hold the world record for the shortest-lived single actuary - because I qualified and got married on the same day. I'll never forget the anniversary at least," he says with a warm smile. He lives with wife Aisling and son Matt (13) in Kildare.
ICI was bought by French company AGF in the mid-90s, then AGF was bought by Allianz. McGrath was appointed group actuary of its Irish property and casualty business at the end of the 1990s and later became head of sales. He took over the chief executive job from predecessor Brendan Murphy.
The company has proved robust compared to the experience of a lot of other insurers in Ireland in recent years, McGrath says frankly.
"Different companies have gotten themselves into different problems. I would have to say that we pride ourselves on the fact that we have been very stable, very financially secure. We have to a degree escaped it. We have kept our house in order.
"We don't chase the cycle, we try and plan for the long term."
Competing with the very low prices offered for motor policies by RSA or FBD during the boom must have made that difficult.
"It's not easy. We've had to, many times, let volume go because we thought the pricing was off. We looked after the business we had, we tried to retain our customers as best we could, but we just didn't compete through the mad cycles.
"When Quinn was on the go it was a time when the economy was booming. Our performance in terms of market share was probably behind everybody else, we probably just maintained our overall position whereas everybody else was growing strongly on the back of the economy. But we couldn't understand, we couldn't see that it was sustainable.
"I'm not privy to what peer companies were doing. But from the outside we would have been looking at some of them and saying, 'this doesn't look as if it is sustainable to us.'
"We dipped our toes into younger drivers back in the early 2000s, for example, and very quickly took them back out again, because it is a very difficult market to make profit in. So we are prepared to make that kind of decision."
Allianz cut costs - and staff - rather than prices in some instances, he says."From the height we have probably dropped about 25pc of our workforce over the years, from say 10 years ago until now.
"The recession hit everybody badly. We would have had a pay freeze for about five years. It came to an end about two to three years ago.
"We restructured our pension scheme - it's gone from defined benefit to defined contribution scheme."
The company reported an operating loss of €9m in its last quarterly results.
"Like everybody else, the environment has been a challenge" McGrath says.
"There are a few technical issues, accounting issues, in there which I won't bore you with. By the end of the year we will be in a much better position, that's the best way to explain it. We're on track to be in profit."
Half of Allianz Ireland's business is personal insurance (home and motor) and half is commercial.
Like all insurers there have been increases to the cost of many its policies in recent years, particularly motor policies, in line with the market.
Motor insurance prices were up 35.2pc in May, according to the CSO. And Allianz is not finished with price hikes this year.
"We've had significant increases over the past year and a half, yes.
It will raise the price of motor insurance by "about 10pc" in total for 2016, he says.
"We have already in the system five [percentage] points gone in, and there is five points going in in the next couple of weeks."
"They'll have gone in by the half-year point and we expect that, from there on, we have seen the back of increases for a while." Allianz does not announce price increases, instead introducing them as people renew their policies.
"We would see home insurance prices as fairly flat, with maybe some small increases to allow for inflation. Commercial business will also see increases. Commercial is a much more diverse book of business, it's very industry-specific as well. We are probably talking about an average 10pc rate increase in commercial business this year."
Large and inconsistent awards for personal injuries claims, payable by insurers, continue to push up the cost of insurance for everyone, he says.
"One of the things that insurers want is stability.
"As a society we need to decide: What's a fair level of compensation for people who are injured?
"You have to be fair to them on one hand, and fair to businesses and consumers on the other hand, the ones who pay for it.
"We were running along nicely for a number of years and then the District Court and Circuit Court changes in jurisdiction brought a level of uncertainty to awards. [The changes upped the amount those courts can award].
"And then over the last number of years, around 23 of the 36 High Court judges have been new appointees. That brings a level of instability."
What about the Book of Quantum - guidelines for personal injuries awards, which are currently being reviewed?
"Hopefully it will bring more stability rather than less," says McGrath. Allianz would like judges to adhere to the Book of Quantum more closely, as they do in Northern Ireland.
"The judiciary in Northern Ireland are involved in setting the Book of Quantum," McGrath points out.
Or the out-of-court personal injuries assessment body, the Injuries Board, could be given more powers, he says. It is meant to cut costs for everyone by cutting out lawyers, but is often bypassed.
"Alternatively, the Injuries Board could have a lot more scope in terms of assessing damage across a much broader range of injuries.
"At the moment, if there is an issue over who is at fault they don't get involved; if there are psychological issues, they don't get involved. You could have them set the level of damages and if there are liability issues that still need to be sorted out in court then, absolutely, that needs to go the legal route to decide who is at fault - but the damages are a lot clearer.
"There are a number of ways of doing it and I just think it needs all sides to agree. It suits no one having the volatility we have at the moment."
Allianz was involved in a particularly controversial spurious claim this year.
A woman's €60,000 damages action was dismissed in the Circuit Civil Court after a judge found her case was undermined by photos she had posted online.
Lithuanian national Rita Milinovic (29), who has been living in Ireland for almost 10 years, argued that her life had been dramatically changed by a collision in a car park.
But her story was contradicted by pictures she posted of herself on Facebook after the accident, including bikini-clad shots taken at international body sculpture competitions.
Inconsistent awards are still a much bigger concern than fraudulent claims, McGrath maintains. "Spurious claims are an issue but we have always been working on them. They've always been around and always will be."
Another problem for insurers this year was the High Court decision that ruled the Motor Insurers Bureau of Ireland (MIBI) is liable for claims made against collapsed Maltese insurer Setanta.
The judgement effectively makes Irish insurers liable for the mistakes of their competitors, even those headquartered overseas. MIBI is appealing the decision to the Supreme Court.
"My biggest problem with this is how we look internationally," says McGrath.
"To the outside world, it just doesn't look good that companies who are doing things properly have to foot the bill. Setanta was 100pc motor. Imagine if it had been a broader-based insurer. It doesn't reflect well on Ireland where we are trying to be an international financial services centre."
There is plenty to be cheerful about, too. McGrath is particularly proud of his company's new online platform, MyAllianz. It enables customers to buy a policy and track their claim through their smartphone.
Remote video assessment of claims is next. It is currently being trialled.
"That's what customers are demanding now," the chief executive says. "Customers are time-poor. Proof of that is [that] two of the busiest days we have had online were Christmas Day and Easter Sunday, for people going onto MyAllianz.
We launched it last year and we are on track to have 50pc of our customer base converted to MyAllianz, which is way ahead of what we thought we'd get within a year."
But do people really care about apps? When it comes to insurance, is price not king?
"Price is always important, but it's not the only thing."
He quotes a survey which found that 30pc of customers said they would change their financial services provider if the technology wasn't up to scratch, with one in five stating they would be willing to buy financial services off Google, Amazon or Facebook.
"We see our competition of the future as not necessarily our traditional peers. It is going to be the likes of Google, Amazon, Facebook."
In response, the Allianz group has earmarked €1bn for tech spending between now and 2018, on projects such as telematics technology for cars. This monitors a driver's style and could potentially reduce their premium.
"Allianz Group is working on telematics technology in Italy. That's a solution that we would hope would be able to reach the market here." This is good news for struggling new drivers - telematics technology would allow Allianz to reconsider insuring younger drivers, he adds.
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