Challenges Facing the Insurance Sector : An Interview with AXA Group's CFO Gérald Harlin

Since 2010, Gérald Harlin has been Group Chief Financial Officer and a member of the Group’s Executive Committee since July 2008. As of July 1st, 2016, he joined the Group’s Management Committee.
Here he talks about AXA’s response to challenges facing the insurance sector.

What will be the most important issues for the insurance sector in the coming years?

Our sector is suffering from the long-term impact of a persistently low interest-rate environment. But it seems to me that the essential challenge in the future will be customer relations. Until quite recently, customer relations wasn’t a major strategic consideration. But that’s no longer the case today. What has brought about this change? First of all, the fact that digital and multi-channel access are in the process of changing the way we talk to our customers, both in terms of sales and of managing claims.

I also think that customer protection is going to become a significant topic in conjunction with ever-increasing regulation. This will be an issue as fundamental as the introduction of the Solvency II directive. We support these changes, because we believe that it’s in our interest to have customers who are satisfied with our performance.
In the non-life segment, we are planning to offer a much wider range of services and adapting our model from payer to partner. In a digital world, consumers will be able to find the most attractive prices quickly and easily. As a consequence, it will be services that make the difference. For us, the obvious objective will be to increase the proportion of multiple policy holders, which protects us and is a strong driver for customer retention.
In terms of natural risks, which are becoming more frequent, our technical expertise enables us to both manage and prevent them – directly with our customers, but also, to an increasing extent, with new partners such as local authorities.

When you mention the need to offer more services, where does the prevention aspect fit in? 

Prevention is a crucial issue. It’s an integral part of our evolution from payer to partner. We must strengthen the alignment of the insurer’s and the customer’s interests. I’m a firm believer in that. Prevention means avoiding the materialisation of the risk and mitigating its impact: that’s in the customer’s interest as much as the insurer’s. It’s up to us to find ‘win-win’ solutions. In this context, our ability to invest is a definite advantage.

You see customer protection as an opportunity, whereas to many it looks more like a kind of constraint…

The insurance sector has had a poor image for decades. This offers us a tremendous opportunity to completely change the game and make a fresh start in partnership with our customers. If you look at consumer protection more generally, it’s a strong trend that is affecting every sector and there is no reason why insurance should be exempt. On the contrary, I see customer protection as a chance to change the way we’re seen and to stand out from our competitors.

Which business lines are particularly likely to grow?

Your question gives me the opportunity to mention that there is scope for growth in our sector, in the emerging countries – especially Asia, and Africa in the longer term – but also in mature markets. We are going to be much more active in health. Business insurance, particularly for SMEs and ETIs, still has significant potential because these businesses are often inadequately protected. It also appears that at a time of persistent low interest rates, savings will be seen differently. For us, that provides a real opportunity because our customers will be turning to pension products. The example of Japan is very telling: it’s a country where we’re recording excellent growth and very sound profitability, despite a very low-growth economy.

So you will have to switch to products with a higher risk profile?

Customers who are planning their retirement really have no other choice. That actually makes our advice offering even more important. Taking a little more risk does not mean doing just anything. In the existing interest-rate environment, authorities and banks believed that quantitative easing would boost consumption. Now we’re seeing that the low returns on financial products are encouraging consumers to save to protect themselves against adversity.
But savings cannot always provide protection. So we need to be flexible and know how to adapt to changes in the environment.
Our response to this environment is our ‘Focus and Transform’ plan. Carefully assessing what our customers and shareholders expect from us: being selective about growth, minimising capital consumption, unit-linked products. You can’t grow everywhere. The trend might be to make a profit, but we won’t follow it. We are in a world where return on capital is essential.
Another priority is cost-efficiency. We have real scope for improvement in this area, as in others. The idea is to stagger the objective of 2.1bn euros of cost efficiencies over the term of the Focus and Transform plan, and everyone has a roadmap.
Improving technical margins is an objective too, and big data will help us.

What do you see as the other sources of danger for the insurance sector?

The main danger is what I’d call the risk of product trivialisation. That seems to be something we share with the audit world. To avoid this risk, we need to adapt our business model: to improve and diversify our services, accelerate innovation for our customers in a digital world where they themselves are changing very fast, review our prevention services, revitalise our support. In short, be capable of standing out from our competitors.

And how do you integrate social and environmental issues in your model and your relationships with stakeholders?

These issues are critical trends today. In areas like large risks, health or natural disasters, we act as advisors to our customers. But beyond that we have to be able to explain the role we play in social matters, especially in our investment strategies. It’s a fundamental aspect. I am convinced that customers will increasingly care about the way we manage our assets and the criteria we adopt in managing them. That’s why we have taken the decision to make no more investments in the tobacco industry or in coal. I repeat: it’s a critical trend which AXA has chosen to anticipate. Soon it will be impossible to invest the way we used to. Taking ESG criteria into account is becoming a reality in almost every asset class. And our obligations for non-financial reporting will only increase.

However, what matters is less the way we communicate on this topic than the tangible evidence we are able to present. At a time when banks lack the resources to invest for reasons of equity, the role of long-term investors is even more important.

That brings us back to regulatory obligations. How can all these regulations be respected, when they are becoming increasingly numerous and burdensome?

Regulation will become stronger and stronger. Often, we have taken the initiative. In several areas we have taken a proactive approach and led the way. We were among the first insurers to establish a policy for the confidentiality of private data, even if that’s an area that needs constant improvement. We’ve already mentioned customer protection. Take the example of Solvency II – there again we were proactive and had already developed a tool to manage economic capital model fifteen years ago.  Whatever the area, you have to anticipate regulation. We prefer to play an active part: to be a partner in the introduction of new regulations rather than just submit to them. Internal oversight is another example, and so are unclaimed policies. On this last point we’ve been extremely proactive, and currently have 300 people working on it. So far we have found more than 90% of contract beneficiaries, which represents several hundred thousand policies.