Beyond the threat

Beyond the threat

Suncorp’s new operating model is designed to take advantage of a coronavirus-shaped opportunity

By John Deex

The COVID-19 pandemic continues to hurt Australia’s society, economy and insurance industry. While the scale of the damage is not yet clear, Suncorp Group Chief Executive Steve Johnston is determined to see positives, and equally determined to capitalise on them.

The major insurer last month announced a dramatic shift in the way its insurance division is organised.

Former Insurance Chief Executive and industry stalwart Gary Dransfield has left the group, with leadership of the division now split in two.

Lisa Harrison, previously Chief Customer & Digital Officer, has been appointed to the new role of Insurance Product and Portfolio Chief Executive, encompassing distribution channels, customer strategy, brand and marketing, product and pricing and innovation.

The new role of Chief Operating Officer – Insurance is being taken up by Paul Smeaton, who has led the Suncorp New Zealand business for the past five years.

Mr Johnston says while he’d been contemplating such changes “for some time”, COVID-19 “sped up the desire” to implement them – because Suncorp believes the current environment offers a unique transformation opportunity that cannot be missed.

“It really comes off the back of what we see as a defining moment for financial services, which is the pandemic and the response to the pandemic,” he told Insurance News.

“We’ve been able to do things faster and cheaper than we’ve ever been able to do before. So these changes to the insurance business will allow us to significantly increase the pace at which we transform.”

Mr Johnston says the “generation-defining pandemic” has been joined by other significant forces.

There are the bushfires and claims events “which have had a very material impact on global reinsurance markets and the cost of insurance generally”, alongside the “firmly entrenched low yields” which have hit insurers’ investment returns.

“These three forces coming through are somewhat macro in their nature, which means it really is time to move quickly to speed up our ability to think about our business differently, and to meet customers in a different way than we have historically or traditionally,” Mr Johnston says.

“These dynamics are certainly going to be embedded for a period of time, and the last thing you want to do in that environment is keep a static business model and keep doing what you’ve done in the past.

“I’ve always felt we need to move at a faster pace. The environment is dictating that and COVID is our opportunity to galvanise ourselves.”

This is not the first significant change Mr Johnston has presided over. Shortly after taking the Group Chief Executive role almost a year ago, he culled the highly controversial Marketplace strategy.

His predecessor Michael Cameron aimed to transform customer experience, attempting to emulate companies like Apple with a series of concept stores.

But Mr Johnston believed the strategy was too ambitious, with the narrative eclipsing other good work, and pushed customer functions back into the core insurance and banking divisions.

“We have de-emphasised the aspirational elements of the Marketplace strategy, and realigned our focus and structure to strengthen the performance of our core businesses,” he told Insurance News.

“The Marketplace investments put the foundations in place, particularly around digitisation, which we continue to leverage. [The stores] continue to operate across various locations.”

Tackling Marketplace was step one, and now COVID-19 has opened the way for a second major change.

Mr Johnston breaks down the opportunity into key areas – brands, products, distribution and claims.

Changing it up: Steve Johnston

Suncorp, as a “multi-brand manager”, needs to go through a process of reinvigorating and realigning its brands, he says. This will involve making sure they are “pointed to the right market segment and the right geography”.

Products need to be simplified, and evolved, with digital offerings “embedded in the product suite”.

“Customers will have different needs coming out of the pandemic than they had going into it,” Mr Johnston says.

“Their cashflows are going to be disrupted for a period of time. Product simplification and evolving products to be more innovative, using digital and data at the core, is a really big opportunity.”

More flexible products and insurance-on-demand offerings could all be considered, he says.

“Everything should be on the table to make sure that during this period of time we have an opportunity to continue to provide people with adequate cover – because people will still want to be protected.

“There are plenty of opportunities for us to innovate new products to do that. We’ve done that with Bingle Go and other products already, so we will just be speeding that up.”

In distribution, COVID-19 has shifted the goalposts significantly, with customers now significantly more prepared to interact with sales and service digitally.

“Insurance is going to make a stepchange in terms of the propensity of customers to interact with companies like ours digitally, simply because in a pandemic they have been forced to do that.

“We’ve implemented things in a matter of weeks that we otherwise anticipated taking us months or even years to do.”

“We’ve got good digital capability in our group. We’ve just got to make sure we work our way through how we make that even better and when a customer wants to interact with us digitally that we can meet them through that process as efficiently as we can.”

Mr Johnston says digital sales have increased by 20-25% over the past three months, and he believes the companies that perform the best in the current environment will inevitably be those that “serve their customers efficiently in a digital construct and build products that align with the digital sales activity”.

That doesn’t mean other channels become less important, however. Brokers, in particular, remain vital as “a significant contributor to profitability”.

“I’m a very big fan of the relationship aspect of our business, and one of the mistakes that we made in the Marketplace structure and narrative of days gone by is that it didn’t put enough emphasis on the intermediated end of our business,” Mr Johnston says.

“We are respectful of the role of brokers in terms of serving customers. All that I’ll be looking to do in these structural changes is to enhance that.

“There is a digital story that plays out there to improve the way that we work with brokers. We can digitise more of our processes, work alongside the intermediated market, all with the endgame of delivering better service to customers.”

Mr Johnston also sees claims as “a huge opportunity” and another area that needs to evolve.

Suncorp aspires to have a “best in class” claims service, and to enhance the way it tackles claims costs. That aspiration was rewarded in July when brokers’ votes resulted in Suncorp’s intermediated brand Vero winning the prestigious Gold Mansfield Award for claims excellence.

“I was very keen to elevate the role of claims within the business,” Mr Johnston says.

“In a business of our size with insurance so big within the group, it is a very big business in its own right.

“I’ve always felt that at the heart of any insurance company is the management of claims, and we do that exceptionally well at Suncorp.

“When we have bushfires and floods and hailstorms our claims teams work together and really live the purpose of the company.

“Lifting that up a level in the organisation, putting someone like Paul [Smeaton] in charge, with his deep experience in managing claims teams and his demonstrated success in New Zealand, will not only improve our claims management processes and align them even better with the customer. It will also allow him to really focus in very specifically on what needs to be done to digitise more of the claims and take manual processes out.

“We ultimately aspire to be the best in class for both short and long-tail claims. It’s great for our customers but I think will also drive down material costs across the group.”

Mr Johnston says the structure at the highest level is in place “for the foreseeable future”. But there will likely be further reorganisation as the new model is embedded, and lower staffing layers are brought into play.

“There will be changes as you work your way through the organisation,” he says. “But I don’t come at it from a staff reduction perspective. It’s more aligned to increasing the pace of implementation.

“Our opportunity here is to really grow our revenues as a proportion of our costs, as opposed to slashing and burning our cost base.

“We need to be efficient and we’ve done that – we’ve demonstrated that over many years with big programs of work that generate huge headline cost savings.

“I continue to expect the business to become more efficient, but ultimately if you serve customers better and you have got your brands working well and your products sitting beneath those brands being relevant to customers and you can distribute digitally, then by definition you are going to be growing your revenues.

“So I see continued prudent management of an efficient cost base but growing revenues through being able to serve customers better and meet more of their needs.”

For Mr Johnston, dealing with a once in-100-year pandemic has been a huge challenge.

But now he has set his sights on the opportunities it brings – a new impetus for transformation, and evidence that fastpaced change is possible.

“I look at lots of things that have sat on our project slate for many years that we haven’t done because we felt that the cost was too great or the time taken to implement was too long.

“We’ve done some of those things, like webchat on claims that would’ve sat on our project slate for 12-18 months, in weeks.

“We’ve implemented things in a matter of weeks that we otherwise anticipated taking us months or even years to do.

“The whole dynamic of the organisation has changed. We’re doing things that we never thought we could do. We’re working differently [and] our customers are interacting with us differently.

“Everything has come together to provide this unique opportunity for us as we move through the threat to the opportunity.

“The whole structure of the organisation and speed of the organisation needs to reflect the opportunity set that we have in front of us – and that’s why the changes have been made.” 0

Processing a pandemic

While Suncorp can now turn its thoughts to the opportunities presented by COVID-19, the fast-moving and deadly virus initially brought a set of challenges that the insurance industry has never faced before.

Mr Johnston says Suncorp took a series of measures to make sure it could cope with everything the pandemic could throw at it.

“In a business like ours when you front into something like a pandemic you’ve got some immediate challenges,” he says.

The first measure was the switch to remote working at a much larger scale.

“We had to work very quickly to establish our ability to move from an environment where 20-30% of our workforce was working from home on any one day to having 95-100%.

“We had to make sure that our IT systems, which are very strong, could cope with that level of support remotely.”

The business also had to ensure it could serve its customers while maintaining a strong balance sheet and appropriate funding levels.

“We went through all of those steps to make sure that we had a very safe, robust, resilient business from a funding, liquidity, balance sheet, operational point of view – that we could continue to serve our customers as they’d expect us to.

“Once you work your way through that part of the cycle, we quickly turned our minds to what could we do differently.

“The fourth priority is to do what we are doing today, which is to align the business to make sure that we emerge from the pandemic in better shape than we entered it.”