Q&A: Boston Consulting Group managing director Christian Reber

The MENA region, like others around the world, is in a pursuit for growth and stability in a soft market; currently, personal lines are being viewed as an opportunity because they are viewed as ‘easier’. Is this so? 

They are easy as a product, in most cases, but they are extremely difficult in this part of the world. In the MENA region, while the people have the assets you still need them to understand what it is they are buying, to actually want it and to be aware that there’s a need and a benefit. In most of the markets of the region, the bulk of the insurance market is limited to what is compulsory: health and motor. In some countries you also have the constraints of whether it complies with religious convictions. So actually personal lines is a very challenging business in the MENA region.  

Personal lines are absolutely the way forward, but it takes more time to build that business. Efforts done now will not hit the 2016 bottom line, whereas a good performance in commercial lines will. For personal lines, do it in an innovative way – I think the industry and the region can do with some disruption. If somebody does it well they will be extremely successful. 

How can innovation help with the development of personal lines business? 

In the MENA region people are very tech savvy and abreast of new technologies and distribution platforms, so there certainly is something to be done around the distribution play. Insurers that really manage to master these capabilities have an opportunity to win. A second role for innovation will use digital to improve the underlying business models, which in many cases are not very sophisticated. Using digital smartly can help to better understand risks, better understand customers or manage capital more effectively.

There is an awareness of how innovation and digitisation can positively impact personal lines, but how can it be used to impact commercial lines? 

For commercial lines, digital has three types of impact. The first, as with personal lines, is the engagement with the customer. The second is around risk pools: some will disappear, some will be created and some will just change their nature or shift their risk profile. The third focuses on processes. There is a lot of talk about using digitisation and automatization for smarter ways to work. However, it is not sufficient to just plug in and assume automating will make things better. It’s much more fundamental. 

I would urge all companies to look at what digitisation means for the companies, the sectors, the industries and the risk pools they insure 

If you automate a badly performing process, it is still a badly performing process done with batteries. There needs to be a real transformation of organisational culture. Only then will we have the impact. I would urge all commercial insurers to look very closely at what digitisation actually means for the companies, the sectors, the industries, and the risk pools they insure. The impact of the self-driving car on insurance starts being understood quite well, but if you think about transportation logistics – which is very relevant in the MENA region – you have completely integrated, fully automated logistics systems across several modes of transportation, presenting sort of risks. How do you deal with that? 

Given the differences between personal and commercial lines, the way customer engagement would be approached would be different; is there still room for innovation here on the commercial front?  

The engagement with customers obviously has a very different meaning and a very different flavour when it comes to the commercial markets. You can engage with commercial customers using innovative platforms, certainly. But I think there’s much more that can be done with regard to building an ecosystem where you as the insurance company maybe team up with others and possibly team up with a customer and say “let’s use the Internet of Things, and let’s use sensors for monitoring and tracking, to understand what is going on and to understand the risk better” which helps you with claims also. I think there is a lot to be done in this area. 

As well as innovation shaping the market, M&A is altering the landscape in MENA; so what are the challenges of M&A and consolidation in the region? 

Especially in reinsurance, you see two types of M&A deals across the world. You see the type of deal that is done because there a sudden opportunity for a low price or cheap financing, but that is more of a short to mid-term optimisation of shareholders’ positioning. Then you see a second, rarer, type of deal, which is about building the capabilities for the future. In the future, there will be three different types of reinsurance business, and now is the time where companies start positioning themselves towards one of these ways of doing reinsurance. There are only a few of these M&As that are done in order to prepare companies for this future positioning. 

What are the three positions, from your viewpoint? 

The bulk of the reinsurance industry, its volumes and premiums, will be even more commoditised than today. It is capacity providers who will compete on price, and financial strength. Most places will be in that group. Then you have a second group – a slowly dying breed – which is what I call the local heroes. In some markets you have certain places which get a lot of business simply for being around for a long time, and having been or still being protected by regulation and compulsory concessions. And then there’s a third, small, group, which I call the “knowledge players”. They have capabilities to be ahead of the rest in terms of understanding certain risks better, of understanding what is “under the hood”, and of acting as advisers on top of their role of risk carriers. 

When you’re talking about that third group, the knowledge players, my mind goes straight to the very big players. But does that category also apply to some of the smaller specialist players? Players that are tiny but very highly specialised? 

So “knowledge player” is possibly a somewhat misleading term, and I think the industry may need to find a better term. But in any case, it is not about knowing a market or knowing a line very well – you have a specialty and brokers who do that. It’s much more to do with how you position yourself within an ecosystem of players. It’s thought leadership, rather than being able to structure a certain transaction. If you want to be a knowledge player, you need to leverage that in a very aggressive manner. 

Ten years ago you could dominate the industry if you had more data than others. Today that doesn’t matter. It’s making sense of the data that counts 

Ten years ago you could dominate the industry if you had more data than others, and there were a few players that had more data. Today, that doesn’t differentiate you, everybody has data. It’s making sense of data that matters. To build the capabilities to make sense of the data you need certain investment capability, or capacity. Being big helps, but being big is not sufficient.