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He may have had to live with many of Mr O’Halloran’s business decisions, but Mr Neal has taken a broom to his predecessor’s executive team during his first year. The preference to promote from within was overturned when QBE North America President and Chief Executive John Rumpler was replaced by outsider David Duclos, while another outsider, David Fried, was brought in to replace Mike Goodwin as Asia-Pacific Chief Executive. Mr Neal’s former London colleague, QBE Europe Chief Executive Steven Burns, will move to Sydney as group chief financial officer from early next year on the retirement of a stalwart of the O’Halloran era, Neil Drabsch. Mr Neal told Insurance News it is these changes that have been his hardest decisions to date. “The hardest decisions are always around people in any business. “We’ve made some pretty significant leadership changes at the top of the organisation. “While that has the excitement of bringing quality new leaders into the business… it also means that you’re making some pretty harsh changes as well.” QBE’s operational transformation program, which involves offshoring work from each of its divisions to a group shared services centre in the Philippines in order to save at least $US250 million by the end of 2015 (see side story) has attracted its fair share of controversy. But when reflecting on the business decisions he has had to make, Mr Neal is more clinical. “The reason for embarking on the operational transformation program was to position the business for future profitable growth. “As far as business decisions are concerned… you’ve got to be very clear strategically in the direction you want to take the business and what the implications of those decisions are,” he told Insurance News. “You’ve got 17,000 people you’re asking to execute a plan so it does take real clarity.” Hard decisions and plenty of clarity are also required to tackle the company’s North America business, referred to earlier this year by Mr Neal as a “problem child”, which it remains today. “The underperformance of this division has understandably caused concern to many of our stakeholders and, in the short term, has detracted from the progress being achieved generally across the group,” Mr Neal wrote in the company’s half-year report. As a consequence of this underperformance, in August QBE cut its full-year gross written premium (GWP) target for the North America business by $US600 million to allow for further remediation to take place. The division, which is roughly evenly split between property and casualty (P&C) business and specialty businesses including crop insurance and lenders’ mortgage insurance (LMI), was particularly dragged down by “performance issues” in the LMI business in the first half. The US LMI segment, which in large part is comprised of the Balboa business QBE bought from Bank of America in 2011, was affected by the bank’s decision to sell one-third of its loans portfolio during the period. 12


Trouble in America: QBE’s lenders’ mortgage insurance business has hit hard times after booming during the US housing crisis

Changing the company: the Operational Transformation Program QBE’s Operational Transformation Program (OTP) is in full swing, with the Australian business on track to complete the transition of functions to the new Group Shared Services Centre (GSSC) in Manila by the first quarter of next year. And so far, the program is tracking ahead of expectations, Mr Neal said in a recent market update. The OTP is aiming to leverage the opportunities that come from having a global business by simplifying and standardising processes and centralising functions in finance, HR, operations, IT and procurement in its offshore service centre. It also includes – most controversially – centralising some claims functions, with back-office claims roles offshored and expert teams established in each division to manage complex claims. The implementation and restructuring costs associated with the OTP total some $US310 million over a three year period, but costs savings are expected to hit an annual run-rate benefit of at least $US250 million by the end of 2015. Cost savings of $US25 million are expected this financial year, increasing to $US190 million in 2014. These figures exclude estimated global claims procurement savings of at least $US90 million by 2015. “The substantial proportion of those cost benefits are really driven from taking a global perspective around procurement so the way in which we contract in the IT space, the way in which we contract with telecommunications providers, the way in which we contract for some of our claim supply chain line. So the real cost benefits are more around procurement,” Mr Neal told Insurance News. He says the program is also aiming to reduce administration work, improve the quality of documentation and optimise service quality across the group. To that end, service metrics are a key focus, with service-related key performance indicators being measured twice daily. Another key benefit is to make QBE “acquisition-ready”, as streamlined back-office processes should enable new businesses to be efficiently integrated, and equally, to make the company more scalable in order to handle volume growth in existing businesses. In terms of timing, the Australian business led the OTP with the majority of the local project to be completed by the first quarter of next year. The planning phase for the North American division has concluded, and the OTP will commence in that business in the last quarter of this year, continuing until the second quarter of 2015. The European division’s participation in the OTP is currently being planned, with work scheduled to begin in the second quarter of next year, running through until the second quarter of 2015. QBE Australia and NZ Chief Executive Colin Fagen says the implementation of the OTP will lead to annual run-rate benefits of at least $US85 million for the Australian business by the end of 2015, with the biggest saving – $US36 million – to come from operations. Of 521 Australian staff whose jobs were affected by the OTP as at mid-June, 39 have been made redundant, with 364 either redeployed or in the process of being redeployed. The remainder were contract staff and those that have left as a result of “natural” turnover. Mr Fagen says Australian motor claims are “fully live” in Manila, with property claims and underwriting processing at the centre scheduled to scale up. The company reports that efficiencies are already being realised and improvements in operational metrics are also being recorded, with a kick up in finalisation rates for motor claims and response times to quotes.

QBE Manila average staff member: • • • •

tertiary educated (95% undergraduate degree, 30% postgraduate qualifications) 34 years old minimum 2 years’ relevant post-graduate work experience commutes over one hour to work each day


October/November 2013

Profile for Insurance News (the magazine)

OCT/NOV 2013 - Insurance News (the magazine)  

QBE CEO John Neal has spoken exclusively to Insurance News about his drive to turn the global insurer’s fortunes around. Our in-depth articl...

OCT/NOV 2013 - Insurance News (the magazine)  

QBE CEO John Neal has spoken exclusively to Insurance News about his drive to turn the global insurer’s fortunes around. Our in-depth articl...