Well integrated, well digitised companies can attract far higher valuations – so why isn’t this market better at integration? Chris Gagg, chief financial officer of AFL Insurance Brokers, shines the spotlight on efficiency.
There was a time, not so long ago, when the very mention of the term ‘operational efficiency’ in an insurance board room would burst a light bulb, simultaneously prompting directors to slump in their seats and switch off.
Frustratingly, I’ve seen this scene play out many times. There’s no doubt that the insurance market has unrivalled expertise when it comes to mergers and acquisitions – getting the next deal done comes naturally to us, it’s where the negotiations happen, it’s the fun bit.
But, historically, the market has struggled with integration, digitisation and automation. In fact, I can’t think of a single best practice example that I’ve seen of good post-acquisition integration / automation that has resulted in a truly world class digital age operation.
An assault on margins
It’s such a missed opportunity. We should be working on generating 30%-40% cash profit margins, but without a structure built on operational excellence, it often becomes very difficult to typically edge above 10% to 20% on a cash basis.
And yet, those that focus on getting the back office and integration right could attract double valuations on higher margins. So given the prize, it is remains strange to me that this isn’t given as much focus or energy as doing the deal.
More so in today’s world where technology has advanced, and is now affordable to fit the delivery of greater economic value.
Partnerships are crucial
It’s impossible not to be excited about the potential advances that insurtech could bring individual companies and the industry as a whole. But at the same time, I see the current insurtech world as being a bit like the dot com bubble during the 90s – there is a lot of duplication, and I believe at least 90% of insurtech ventures we see today won’t be here in five years’ time.
But like the Apples, Amazons and Googles we all know today, those that remain will go on to be hugely successful and change the insurance world dramatically.
To my mind, the future insurtech winners are the ones who have strong partners in the insurance industry – not just understanding the cold financials and data, but also the warmer, softer side, getting into the psyche of the market, the customer, our people, and adopting and adapting accordingly.
The key word being enablement rather than disruption, the mantra being marrying up the old and the new worlds, not replacing. And I see a number of insurtechs moving in this direction which is incredibly exciting.
We’re working on it
AFL envisages a hybrid model between traditional insurance and technology emerging as we move forward, and we knew we had to position ourselves to embrace this new normal.
As a broker, we have access to global markets and products, including shared platforms. Our membership of the Worldwide Broker Network is central to our scope – affording us a wide perspective on the global opportunities, as well as the pinch points and challenges.
We can bring this independent, global perspective to insurtech partnerships. Through the AFL Incubator, we are focussed on developing new tech-enabled insurance products, actively partnering with insurtechs providing access to markets, capital and infrastructure, and standing alongside entrepreneurs who are committed to shaping the future of our industry.
As well as continually enhancing client service and experience, the key focus for us is digitising our operation, using standard platforms across the business, and adopting the most efficient operational processes available to us.
Just recently, we made an acquisition of a fantastic US MGA business in Zodiac Insurance Services, and our focus now is digitising the business operationally and merging onto a single platform.
This was a key focus and rationale behind the deal, because while it gives us a strategic footprint, we were always thinking about the operational efficiency gains and how we could expand the offering.
So now it’s down to us to prove our point. Yes, our market is very good at deals and long may that continue, but even greater value is achieved through operational excellence. Integration, digitisation, and automation are as valuable key performance indicators for the success of our business.
The lightbulbs are burning brightly at AFL, watch this space.
Chris Gagg joined AFL Insurance Brokers in August.
