Transforming Allianz

Singapore, 23rd December 2017 -- By most measures, reinventing a 128-year-old insurance giant from the inside out is a tall order. But the challenge seems particularly formidable when the driver of the transformation is a relatively young chief executive, who is not a company "lifer''.

Allianz Group Chief Executive and Board Chairman Oliver Bate, 52, insists that the "Renewal Agenda'' is not his brainchild. But like it or not, the ambitious five-prong action plan will almost certainly be the hallmark of his term. The plan aims to bring the Munich-headquartered group into the digital age, while improving profitability, customer satisfaction, technical competence and inclusivity - all at the same time.

The key, Mr Bate says, is to pull the 142,000-strong staff along the often-prickly path of change, not to push them. In this, he belies his consulting roots, co-opting more than 100 key staffers into the conceptualisation phase, and getting them to own the vision. Mr Bate was a 14-year veteran at McKinsey & Co before he joined Allianz.

To date, roughly two years into the implementation of the vision, the group is showing results, even if the going has not been free of controversy.

Pulling, not pushing people 

Says Mr Bate: "We need to be more ambitious to grow the company... to be more consequential in saying, good enough is just not good enough. We have to be a leader in what we do, or do something about it (if we're not).'' He adds: "It's not about pushing people; it's about pulling them. Because when you push people into something they don't want to do, it will not work, particularly if it requires building new skills. You have to convince them, and not just persuade them, to change.''

Mr Bate joined Allianz in 2008 as chief operating officer. In a relatively brief six to seven years, he cycled through senior appointments in risk, heading the European insurance business and then the global casualty and property business, before he became chief executive in 2015.

Arguably, a company in a stodgy, hidebound industry such as insurance needs an outsider who can offer a fresh perpective if it is serious about change.

"Most of the things we do for our industry has been around for centuries. It has something to do with the fact that our industry was not invented by consumers,'' he says. "Most of the industry was invented by regulators who said - we want consumers to have insurance for homes, against fires, and we want cars to be insured against accidents. Therefore our industry is quite complicated.''

He recounts a rather startling nugget: In 1965, the year he was born, the insurance industry's expense ratio - the cost of sales and administration as a proportion of premiums - was 30 per cent. Today it remains stubbornly at 30 per cent. "Our industry over five decades has not seen any productivity gain at all, although adjusted for inflation all the values went up. That's why I think there is a lot of room for improvement for our clients.''

Mr Bate was appointed CEO in October 2014, and had a window of six to seven months to "get organised'' before formally taking on the position in May 2015. In that time, he interviewed more than 100 people, including staff, regulators, consumer activists and clients to suss out what is good about the group, and what needs to change.

"What we call 'renewal' is actually the 'heritage and renewal' programme. It focuses on strengthening what's great about Allianz and on what has to be adapted to the world we see unfolding.''

He lists three virtues that should be strengthened - competence, resilience and integrity. "We learnt the hard way through financial crises that being around and being resilient are virtues we need to keep. In the last 10 years, we've had a few crises... Allianz is proud of not cutting corners. There have been many scandals in the financial services industry that we were not a part of. I hope that stays.''

Yet there are aspects that needed to change. Making the customer the heart of the business is one, even if it sounds a trifle cliched. Customer-centricity is the core pillar of the renewal agenda. "Until 20 years ago, we didn't even know who the client was. We were a B2B2C business; we worked through intermediaries, agents, brokers and banks who know the clients.

"One of the things we learnt - and this became the number one priority in the renewal agenda - was that we have to become truly customer-centric, out of necessity and not just ambition. Because the world we're going into, helped by technology and forced by regulation, will force a lot more accountability around what we do with and for customers.

"There is a second very simple logic. The world's most successful companies are always the ones that in their markets have the highest customer satisfaction. It's a little obvious and intuitive but it wasn't for us. In fact, in a number of our largest markets we are not the best in customer satisfaction.'' The renewal agenda has set a target to have at least 75 per cent of the group's businesses score above the market average in net promoter score, NPS, which measures customers' willingness to recommend Allianz to others. Allianz believes that lifting this score yields the potential to attract five million more customers to its fold, and 6.5 billion euros in additional premiums.

'Huge opportunity'

The second pillar is "digital by default''. Technology, says Mr Bate, is a means to an end, and helps to make the business more transparent and simple for the consumer. He shrugs off the widespread concern about the disruption and job losses that technology is expected to wreak. Digitalisation, he argues, is a "huge opportunity'' and could actually improve customer service.

"There is a lot that we can take out of the industry that is a source of frustration for consumers - multiple data entries, all kinds of data collection... Eventually, we'll focus on delivering value as people want it, and that's typically in the quality of advice, either explicitly by humans or embedded in the product.

"I personally believe there is a lot of upside in creating customer transparency, and building on customer preferences in an explicit way by leveraging technology. I don't believe robots will be the advisers. It will be humans, but they will be facilitated and augmented by good analytics.''

The third pillar of technical competence is an area well within Allianz's comfort zone, as it comprises the core skills of policy underwriting, pricing, claims settlement and asset liability matching. But even here, there are challenges. Interest rates remain at rock-bottom levels, putting in jeopardy historical products that may have promised high guaranteed rates. On this score, Mr Bate gives Allianz high marks. The bulk of the group's life insurance products are now "capital-efficient''.

"The biggest challenge transforming our life insurance business was that in its old form, insurers gave very long guarantees on interest rates and the capital. Now that's coming to an end. I think you'll see a lot of that problem come to Asia one day, because the guarantees are uneconomical for consumers and for shareholders. It's like a cancer, not like a heart attack or financial crisis. With interest rates declining, it takes many years to materialise that the earned interest rate is lower than the guarantee, and the capital deficit accumulates.''

In 2015, Allianz set itself a target that by 2018, 80 per cent of the life business must be in pre-defined protection and capital-efficient products. "We'll most likely achieve this by the year-end. That's a massive transformation. We used to be 80 per cent in the wrong products just a few years ago.''

The fourth pillar is to exploit "growth engines''. The growth opportunities clearly lie in Asia and the emerging markets. The rub is that the group's traditional stronghold has been Europe. "We have a footprint issue. We're strong in markets that have lower growth, and not as strong in markets with higher growth like South-east Asia which we neglected for a long time. We're now catching up.'' Between 2013 and 2017, the new business value in Asia, where the group operates in nine markets, has nearly tripled to over 200 million euro (S$319.5 million).

Capital efficiency is a key metric and Mr Bate is keenly aware of the "levers'' that can be pulled to enhance the numbers that shareholders scrutinise, such as return on equity and earnings per share. "Our footprint is very traditional and very mature. Sixty-five per cent-plus of capital is allocated to a low-growth environment. We have to break that.'' One lever is acquisition and another is via share buybacks and the payment of special dividends.

"If we acquire businesses, which we haven't done in any meaningful form in the last decade, we can add to growth. So it's not just that the environment is mature, but our thinking and the way we ran ourselves was very mature. I always believe that organisms that don't grow even slowly, die. We need to train ourselves to grow again on many levers - organically taking market share from competitors and acquiring and consolidating businesses. Because in a mature industry, that's what you do to take excess capacity out and create efficiency.

Culture change

"And if you have excess capital you can deploy it for growth, give it back to shareholders and through that you also grow EPS... pulling the levers in a way to produce higher growth than we've had and to be very disciplined in deploying shareholder capital, which is something we haven't done.'' Allianz set itself ambitious targets: average annual EPS growth of 5 per cent between 2016 and 2018, and total ROE of 13 per cent by 2018.

The fifth pillar is called "inclusive meritocracy'' and targets a culture change. This refers not just to gender and cultural diversity, but also to a more holistic appraisal of staff performance. The goal, he says, is to nurture "a new level of collaboration'' .

"We picked this complicated term because we wanted to make people think about what we do. Allianz is functionally and regionally organised. The functions are good, but they often don't work as well as they could across the silos.'' The internal culture, he says, must be inclusive. "Twenty years ago most top executives in Allianz would be six feet tall, blond and blue-eyed - that was the profile. And Allianz promoted from within; I'm the first outlier. I've been here a decade but for some, I'm still the new kid on the block.''

There are currently two women on the nine-member board - Dr Helga Jung, since January 2012, and Jacqueline Hunt, whom Mr Bate brought in more recently. "It's very imaginable that my successor will be a woman. And we have committed to bring the number of female leaders to at least 20 per cent by 2020.''

The way employees are assessed is also expected to become more holistic, taking into account not just financial performance, but also how the financial targets were achieved. "We used to measure only the financials - how much profit did you deliver to the mothership. We also want to assess people on how they delivered this - did they cut corners? We don't want that. Do they lead the teams effectively? Do they create teams or are they dictators? The 'how' matters a lot.''

Drawing on employee surveys, the group has created an "inclusive meritocracy index'' (IMIX), which tracks performance, leadership and integrity. In 2015, the IMIX score was 68 per cent and the goal is to raise this to 72 per cent. "We've never done this and everyone is nervous, but we have to try. In the first few years we may not get everything done; not everything can be achieved all the time. But the fact that we want to be measured on these things matters a lot to our people.''

Through all these, the key, says Mr Bate, is to spur people to collaborate - and not through a top-down command structure. "I don't believe in a pure source of power, that authority wins people's hearts. In Asia, it's sometimes different; people ascribe a lot of influence to the power and formality of the role. I found that's not very useful in change processes. If you don't have a convincing idea and you've not thought through the process of bringing people together to make the solution a part of their own dream, it doesn't work...

"We know that despite all these, we'll still have people who don't want or can't execute, and over time we'll need to address that. But I'm typically someone who's rather patient in trying to convince people and bring them along rather than the Anglo-Saxon style of 'cut and go'.

"I still believe in the power of the vision and the power of having people collaborate to solve problems. Maybe, that's the good part of the consulting heritage.''

Chairman of the Board of Management, Allianz SE (CEO)

Birth year: 1965


Apprenticeship at Westdeutsche Landesbank, Cologne, Germany

University of Cologne, Business Administration

Leonard Stern School of Business, New York University, MBA

1993 - 1994 McKinsey & Co, New York

1995 - 1998 McKinsey & Co, Germany

1998 - 2003 McKinsey & Co, Germany, Principal, Leader of the German Insurane Practice

2003 - 2007 McKinsey & Co, Director, Leader of the European Insurance and Asset Management Sector

2008 - Sept 2009 Board Member, Allianz SE, Chief Operating Officer

Sept 2009 - 2012 Board Member, Allianz, Controlling, Reporting, Risk (CFO)

2013 - 2014 Board Member, Allianz, Responsible for insurance business in France, Benelux, Italy, Greece, Turkey, and for Centre of Competence "Global Property & Casualty''

Jan - May 2015 Board Member, Allianz, Responsible for Centre of Competence "Global Property & Casualty''

Since May 7, 2015 Chairman and CEO, Allianz SE