Hollard hits the jackpot

Hollard hits the jackpot

Hollard hits the jackpotThe insurer’s game-changing CommInsure acquisition is set to take it to new heights

By John Deex

Speculation over which of Australia’s heavyweight insurers would land the much sought-after prize of Commonwealth Bank’s (CBA’s) general insurance operations was rife for weeks before the successful company was announced.

Not surprisingly IAG and Allianz were rumoured to be front-runners as the process neared its conclusion. But the eventual winner was a company few had seen as a likely option.

Hollard emerged victorious on June 21, announcing a deal that involves an upfront payment of $625 million and includes a 15-year partnership for the distribution of home and motor vehicle products to CBA retail customers in Australia.

Not so long ago Hollard was considered a challenger brand, so it’s not hard to see why founder Richard Enthoven and his new Chief Executive Paul Fahey could barely contain their delight when the deal was announced.

The acquisition brings Hollard an extra $800 million in gross written premium (GWP) – increasing its GWP by 50% – and a lot more besides.

Mr Enthoven, who has stepped away from the chief executive role to become Managing Director of holding company Hollard Holdings Australia, says the acquisition aligns perfectly with ambitions the company has held from day one.

While the CBA deal is undoubtedly a far bigger fish than he could have originally expected to land, he can look back on a range of achievements since he moved to Australia in 1999 to set up the local operations of the South African-headquartered Hollard.

“We felt there was an opportunity for a partnership-based insurer in the market,” he tells Insurance News. “We knew that it would take a lot of time to deliver that.

“But as it turned out the opportunity was probably bigger than we had anticipated. And I think it’s safe to say that we have exceeded our expectations by some margin.”

He says Hollard’s strategy “is about working with significant organisations to distribute highly valued insurance products to their customer bases”.

“And if that’s your strategy, a partnership with CBA would be your number one strategic objective.

“So we are super-excited about the 15-year strategic alliance with CBA. It really allows us to double down on our strategy of focusing on our key customers.”

This strategy includes partnerships with giant retailer Woolworths, financial services specialist Greenstone, and leading broker groups Steadfast and Austbrokers among others.

“For a partnership-based insurer, [the CBA business] is the biggest prize in the country,” Mr Enthoven tells Insurance News.

The acquisition should close in a year’s time, by which time Hollard expects to be “just shy” of $3 billion GWP.

Mr Enthoven says that will make Hollard clearly the fifth-largest insurer in Australia, and probably the fourth-largest in personal lines.

“So our ambition of becoming really meaningful in the Australian market, I think we have achieved.”

But the acquisition delivers longer-term opportunities, too.

Mr Fahey tells Insurance News he has his eye on what the acquired business can bring to Hollard, not just next year but over the next 15 years.

Mr Fahey spent seven years running CBA’s general insurance operations before joining Hollard in 2016, so he’s perfectly placed to know where the extra opportunities in this deal lie.

He says that over the course of the past few months working with the CBA team, he and Mr Enthoven “have both come to the realisation that there is still a lot of unrealised opportunity, given the access to Australians that [CBA] has”.

“It takes us to far more meaningful scale than where we are today. But actually, that’s not the endgame. That is another five to 10 years down the road.”

The CBA products will still be CBA-branded, but Hollard will underwrite them and provide support to improve aspects including claims experience and product innovation.

And while CBA currently only supplies home and motor insurance, the Hollard team is already turning to what could come next.

“All of us are looking at the fact that there are other product opportunities,” Mr Fahey says.

“There are others that the CBA distribution channels are absolutely a perfect fit for, and they don’t offer those products today.”

He also sees opportunity in bringing home loans and home insurance closer together. “Most players today approach them as two very distinct products and two very distinct onboarding experiences. But looking at that whole CBA relationship, we go, ‘well, what can we actually leverage from that home lending?’

“What [the bank] knows about that customer leads us to consider how we can use that to build out a better home buying experience.

Time to think: Mr Enthoven has switched to a more strategic role

“We think no-one really has transformed home insurance in respect of how it’s sold through banks today. CBA has delivered the best outcomes, but still, even from their own perspective, there is considerable growth potential in that business.”

Mr Enthoven believes Hollard’s experience with its other key partners, including major corporates such as Woolworths, will stand it in good stead when it comes to integrating and developing the CBA business.

“We think that really sets us up well to work closely with CBA to deliver on their insurance ambitions,” he says.

“For us, this is not the first time that we’ve worked with a major Australian corporate with a large customer base and rich data analytics. We have a lot of experience in this space and we’re really excited to bring that experience to bear.”

Having secured the CBA deal, Hollard isn’t actively looking for major new partners anytime soon.

Its focus for now is on integrating the CBA business and team, and maximising opportunities within its other existing partners, all of which have good momentum. It’s also in the middle of a major new technology platform project.

“If you look at what we’re standing behind now – CBA, Woolworths and other major partners – they’re very iconic Australian brands,” Mr Fahey says. “We still think there’s significant growth potential in all of them.

“Never say never, but I don’t expect you’ll see us out there onboarding any significant new partners in the near future.”

Mr Enthoven points out that all Hollard’s partnerships are growing.

“Woolworths Insurance continues to grow. Ando in New Zealand continues to grow. Greenstone continues to grow. So we have enough growth in our pipeline not to have to worry about or focus on growth.

“What we are really focused on is simplifying our business, delivering on the IT transformation projects that are well advanced now, and preparing for a successful onboarding of the CBA business.”

While the CBA acquisition has been a huge boost to Hollard, Mr Enthoven says the past few years have been extremely tough for the insurance industry. COVID-19, coming on top of a spate of natural disasters, has ramped up the pressure. But the pandemic has provided some valuable learnings, too.

“I think we’ve learned among other things the value of diversification,” Mr Enthoven says.

“COVID has obviously really hurt parts of our business, like travel insurance. The ability to fall back, in times like this, on other parts of our business that may not have been so impacted has been really valuable.

“The other lesson about COVID is that as an industry we probably need to improve our risk management, and accept that these sorts of black swan events do happen. Probably we underestimated as an industry the sort of collective risk of these types of things occurring.”

While Hollard is a relatively small player in the commercial market, it has been impacted by the COVID-19 business interruption wordings issue.

“That has been frustrating, and I think the industry and consumers are frustrated by the time it’s taking to resolve this issue.”

But despite the frustrations that have flowed from this he says the industry has been “very proactive” in setting up test cases so individual customers don’t have to go through expensive and exhaustive legal processes.

“I feel the industry has done a good job, but the wheels of justice turn slowly.”

Mr Fahey says the pandemic has also been a reminder for insurers to get closer to their customers.

Expectations can change incredibly quickly, he says, whether in relation to motor insurance discounts when lockdowns prevented movement, or travel insurance coverage as the pandemic unfolded.

“I think there’s a real lesson that insurers can do more to be even closer to their customers. I think COVID was a big a wake-up call.”

The insurance affordability debate continues to roll on, as a hardening market makes it difficult for customers in some areas or sectors to access the cover they need.

But Mr Enthoven is keen to emphasise that excessive insurer profits aren’t causing the problem – far from it.

“The insurance industry has had its worst few years on record in Australia,” he says. “We’re starting from a situation where even on current terms and conditions, insurers aren’t generating a sufficient return on capital to encourage investment in the industry.

“That has to get addressed. Otherwise, the availability of insurance will evaporate.

“And to the extent that we see more frequent natural catastrophe losses, that has to be reflected in premiums for the insurance industry to stay viable.

“And so, I do think the price of insurance will continue to reflect the risk to underlying policyholders.”

Costs to the insurance industry are also rising, he says.

“We have input pressure on the supply chain. We have input pressure on reinsurance. And to some extent, we have input pressure on staff costs, particularly in certain skillsets. The cost to provide the service is definitely going up.”

While he sees the Federal Government’s proposed reinsurance pool for northern Australia as a positive, Mr Enthoven says there’s still much to do in projects that prevent the levels of damage that typically accompany cyclones.

“We have seen that when federal and state governments invest in risk mitigation, insurance becomes more affordable. That is demonstrable. So there is a really good return on that spend for the community.”

As for climate change, Mr Enthoven believes the industry must use its expertise to inform the debate and encourage good community outcomes.

“Climate change is not an insurance industry issue,” he says. “It’s not even an Australian issue. It’s a global issue.

“But to the extent that our industry has unique insights into the problem and the social cost of the problem, I think we should continue to share those insights and be a voice in the business community for a robust strategy of managing and mitigating the risk where we can.”

Australia’s insurance industry still faces a myriad of challenges, but Hollard remains upbeat about the year ahead and beyond thanks to an ambition achieved, expectations exceeded, and a new position as one of the leading general insurance companies in Australia.

“We think we’re buying the best asset that will be available for an acquisition in the insurance industry in a long time,” Mr Enthoven says. “We don’t think there’s another one like it coming up.”

Playing to strengths

Recent top-level role changes at Hollard are designed to enable the most effective delivery of its next phase of development.

Former personal lines head Mr Fahey is now Chief Executive, while Mr Enthoven has taken up a more strategic position as Managing Director of Hollard Holdings Australia.

Born in South Africa, Mr Enthoven spent significant time in the UK and US, but it’s Australia he’s chosen as the place to build his life and career. That was never the plan when he arrived in 1999, but he’s delighted with how it’s turned out.

“I arrived in Australia as a 28-year-old and I’m now 50. So I’ve pretty much spent the meat of my career in Australia.

“I think diversity of thought is a huge asset, so I feel privileged that I’ve had exposure to other countries and lived in other places that have given me perspectives that are valuable. But at the end of the day, my commercial story is an Australian and New Zealand story.”

He’s hoping the new role will give him “more time to think”.

“Running an insurance company the size of Hollard is a very busy day-to-day life, with not a lot of time to reflect,” he tells Insurance News.

“What I want to do now is spend a bit more time thinking about what are the big things that make a difference for our customers, our people and our partners, and apply myself to figuring out how Hollard best delivers on those.”

He has full confidence in Mr Fahey, who takes charge of all Hollard sectors apart from pet insurance, which continues to be run by Alexandra Thomas.

Mr Fahey has always worked in insurance, primarily personal lines, spending his early years at GIO before a lengthy stint at CBA, where he ran the general insurance business for seven years.

Mr Enthoven says his successor is “thorough and disciplined” and will lead by example.

“I am very confident that for the body of work that Hollard needs to deliver on over the next few years, [Paul’s] skillset is the best to do that.

“It’s really making sure that collectively, the Hollard leadership team skills are deployed in areas where they can add the most value.”