Turning around a struggling (re)insurance firm can be difficult. So much so, that in a 2016 press interview Ardonagh CEO David Ross, who had been tasked with turning around the firm formerly known as Towergate, likened it to childbirth.
“You end up with a beautiful child at the conclusion of the turnaround, but you forget the screaming and the hollering and the name calling that happens in the middle. We’re in the name-calling phase.”
Towergate is a prime example. In 2014, the business ran at a loss and faced serious uncertainty from an operational cashflow perspective as it struggled with the integration headache of more than 100 acquisitions over the years.
However, the business was taken over in 2015 by Highbridge and following an extensive turnaround strategy is now valued at £4bn.
Turnarounds can be a traumatic but potentially successful process, so what are some of the priorities business leaders need to recognise when pursuing this course of action?
The priorities
For Alex Bertolotti, partner and UK insurance leader at PwC, the starting point has to be costs.
“Sort your costs out,” he says. “Simplify and re-engineer processes where you can cut costs, such as in areas like underwriting and pricing where increased automation is available to you. If you do that, you will be well on your way to achieving your turnaround.”
This can be helpful for businesses that are, like Towergate once was, running at a loss and must do what they can to survive.
However, for those not facing such a dire short-term future, adopting a more deep-rooted assessment could be appropriate.
For instance, start with open-ended questions, like ‘what does the company want to achieve? and ‘where would it have a better chance of competing?’
It is questions like these that Kapil Chandra, senior partner at McKinsey & Company and leader of its UK insurance practice, prefers to ask.
“Too many times we see businesses presuming they are in the right markets,” explains Chandra, who adds that objectivity is key. “This involves a candid look at your portfolio and breaking it down to ask if you have a right to compete.”
This is the textbook way of thinking about turnarounds, he points out. “Once you have your chosen markets, then be forensic about decomposing where it is that performance is suffering.”
“Having a strategic vision is incredibly important,” agrees Brendan Perkins, a director at Fenchurch Advisory Partners who has worked on several turnarounds in his career.
He points out that this can play an important role in identifying the best team members. “Culture is about selling that vision to your people and you want to have the right people with you who believe in what you are doing.”
The risks
When turning around a (re)insurer, everyone involved will be aware of the risk of failure, so knowing when to act – and how much by – can be crucial.
“Many companies fail in not being bold enough,” says Chandra. “Typically, not enough resources are allocated to the priorities and a lot of companies will fall into the trap of incrementalism. In order to fundamentally change performance, you have to take substantial steps.”
Despite the level of commitment required, at the same time executives should also be aware of recognising when a strategy is not working, despite their persistence.
“One of the most important things is don’t be afraid to call it,” Perkins notes. “If it’s something you have invested a lot of time, resources and money into don’t be afraid to have the confidence and the maturity to say it’s not working.”
Here, an objective perspective can be invaluable, which is why many management teams will turn to third-party experts or external hires.
Chandra explains: “Getting that fresh perspective can be incredibly helpful. We have seen CEOs hired from outside an organisation can often drive greater change than those promoted from within, as such problems can permeate throughout an organisation.”
People and capital
One example of new management having a positive impact was when Aviva hired Maurice Tulloch as its new CEO in 2019. Tulloch then turned the FTSE100 giant around from years of poor share-price performance to record profits of £3.2bn.
One of his strategies was to cut 1800 jobs to achieve £300mn of savings. But while this a good place to review costs, Bertolotti warns personnel cuts should be tackled with a nuanced approach.
“There’s a temptation to get rid of a huge amount of staff, but it can be a problem when you realise you could use them six months down the line,” he reflects.
“That is one of the biggest lessons I’ve seen. There will be a time pressure to achieve results and if you look at an insurance company the costs are in people, IT and claims – each one of which is a good place to go after.”
The challenge of personnel is a key issue for Bertolotti because of the financial ramifications. Retaining employees when it will be difficult to incentivise them financially can be problematic but, as seen in the time of Covid-19, this can force firms to review how else they can be efficient and productive.
“This feeds into strengthening capital efficiency, which becomes even more important in a turnaround,” Bertolotti points out. “A big issue right now is supercharging your digital transformation. [The issue of] data and being able to effectively use it to become the best insurance company you can be has had a bit of a boost since Covid-19.”
“If you wanted to turn around a company, focusing on value through data strikes me as a good thing to do,” he concludes.
