August 9 is a good day to catch up with Paul Smeaton.
The CEO of Suncorp New Zealand – who was appointed CEO of the country’s second largest insurer in late 2015 – has just helped present strong results to trans-Tasman shareholders for the 2017-2018 year. Profit after tax for Suncorp’s general insurance in NZ this year was $109m, largely through Vero, and life insurance net profit after tax was $39m. 96% of Suncorp’s claims from the Kaikoura quake have been settled and a programme aimed at reducing Suncorp’s risk exposure in earthquake-prone areas – particularly around corporate property underwriting – has been launched. Suncorp has also been helping customers affected by the Edgecumbe flood. Meanwhile the company’s Australian parent has been going through some upbeat rebranding, asking in adverts ‘Are you ready to money with Sunny?’
One downbeat in Suncorp’s August announcement was net life insurance profit from Asteron Life and AA Life slipped 2.5 percent due to more claims than planned and a higher-than-expected lapse rate. Overall though, Smeaton says things have been especially good for Suncorp compared to last year.
“If you look at 2017 the natural hazards that occurred in NZ were double what we allowed for, but we managed to offset this impact by managing our working claims and expenses very well.” As Smeaton puts it, “the Auckland storm in April 2017 was a shocker.”
Tower Insurance: Burning Issue Extinguished
One recent bump in the road was the Commerce Commission’s decision to decline Suncorp NZ’s application to merge Vero Insurance New Zealand Limited with Tower Insurance in July 2017 (Suncorp’s appeal was relinquished in November.) It was March 2018 that Vero announced it had sold its 19.99% stake in what was NZ’s third largest general insurer by premium income.
“Our time is over with Tower,” Smeaton says. “With the Commerce Commission decision, we’ve moved on. We’ve divested our stake in Tower this financial year and wish them luck moving forward. It was an interesting time… we accept the judges’ decision.”
Considering Smeaton’s NZ operation is owned by Australia’s A$20bn Suncorp Group Ltd, theRoyal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has also been topical. The commission structure in life insurance is one of many aspects the Commission has looked at.
“We are definitely seeing the contagion effect of the commission,” Smeaton says. “A lesson that we’re all learning is about conduct with customers and good customer outcomes.” Elevating the customer is one of Vero’s strategic priorities. “You can’t underestimate doing the right thing by the customer. When you decline a claim for whatever reason […] take a little bit extra time to think, ‘Is this the right customer outcome?’”
30 Years In the Industry
Smeaton hails from Brisbane. Not long after finishing university, he began work at Citibank then worked in the UK for seven years before joining Suncorp in 1994, when the company was owned by Queensland’s government (Suncorp-Metway went private in 1996). His first Suncorp role was as a project manager in the information technology team. Smeaton moved to leadership positions in corporate projects, human resources and general insurance teams. His career in Australia includes roles as Director of GIO Workers Compensation (NSW) and GIO Workers Compensation (Victoria), and he was a Board Member of the Personal Injury Education Foundation Limited and RACT Insurance. Smeaton calls the history of Suncorp “flavoursome” and estimates he has seen five CEOs serving. “I’ve worked in so many different roles. If you said to me back in ’94 ‘you will be CEO of Suncorp New Zealand someday’ I would’ve thought you were on drugs!”
Memorable milestones for Smeaton include the Brisbane Floods in 2011 and the Kaikoura earthquake during his tenure in New Zealand. “Our vision is to be there for those moments that matter. When I think back to the floods, our customer response – it goes to the heart of why I love working for Suncorp.”
Watching mergers as far back as 1993 with Queensland’s State Government Insurance Office have convinced Smeaton of the need to drive transformation through the business. “That goes to my leadership style. When I went to NZ in 2015 I was CEO of just Vero, but it made sense to bring Asteron and Vero together as one business.”
“It comes down to execution, taking people on a journey, and then delivering results.”
“I do hold people to account. Accountability and ownership is a core value.”
Smeaton describes his style as “servant leadership,” he says. “I’m there to serve my people, they don’t serve me.”
Running a sustainable business is what it’s all about. “I hand a sustainable business over to future leaders. I serve my team by developing them for the future … I’m not the sort of guy that just holds the reins.” Part of that sustainability is allowing staff to work flexibly and outside of the office, which has reduced the company’s Auckland real estate footprint by 40%.
Winning over brokers and SMEs
The Insurance Council of New Zealand, of which Smeaton is vice president, will look at two key themes at its annual conference in Auckland on November 20: climate change and consumer trust. Gaining consumer trust, for Vero, has required putting in a lot of effort to listen closely to brokers and small businesses.
The second edition of the Vero SME Insurance Index, published five months ago, was built around survey feedback from 900 small to medium enterprises. The report “Helps brokers to provide better advice […] and helps us think about product design,” Smeaton says. The report also gained insights into businesses who don’t have insurance.
There have been significant recent declines in broker usage in Australia, the Index report points out. In NZ, the decline is far slower, though behaviour is shifting. Rising EQC levies and fire service levy don’t help, Smeaton notes.
Vero’s report follows a similar concept produced by Vero in Australia, which found in 2013 that 44% of SMEs surveyed purchased their last insurance policy through a broker. This fell to 37% in 2017. There was decline in broker usage particularly among medium sized business (those with between 19 and 200 employees), who would traditionally have been the brokers’ core target audience, the report found. Meanwhile SMEs buying directly from insurers rose from 56% in 2013 to 63% in 2017.
50% of NZ respondents said they could easily organise their own insurance online, leading to brokers being cut out, or no insurance being sold at all. This is a worry for Vero, whose pay-outs following NZ’s largest-ever biggest business interruption– the Canterbury earthquakes – were 75% for commercial clients, most of who relied on insurance to continue trade.
The survey also found:
“For me, this confusion about the benefits of insurance, we need to work with brokers on that,” Smeaton says. “We have a role to play in affordability – we have a role to make sure that SMEs understand the value of insurance and can afford what they need.”
A few quick final questions brokers will be itching to ask:
Is Vero planning to follow IAG’s lead and remove incentivised sales targets?
“Our philosophy is all about frontline staff being rewarded for providing better customer outcomes.” However, “We’ll roll [removing sales targets] out, it’s totally imminent this year. KPIs for 2018/19 are being rolled out so now is the time.”
On Vero’s decision to take away free excess on windscreen and window replacements.
“In terms of repairinga glass windscreen, that’s still free. You only pay an excess when the windscreen needs to be replaced,” Smeaton says. “We’ve found in the last 12-18 months the number of windscreen claims became unsustainable.” Vero has said only 7% of customers were claiming the benefit anyway, so the changes only affect a small number of customers. “We’ve tried to limit the impact on a small percentage who claim to replace their windscreen, rather than applying more premium increases across the board. Nothing’s for free. It’s embedded in the price. Let’s acknowledge that.”
To put things in perspective, ICNZ figures show the amount paid out for private and commercial motor vehicle claims as a proportion of premiums has spiked from 60% in 2013 to 77% in 2017, essentially meaning for every dollar insurers received in premiums last year, 77 cents was paid out in claims.
