Forty Years of Lessons Learned in Insurance
Jim Sutcliffe has the unique distinction of over four decades in insurance; global experience spanning three continents; CEO and Chairman positions at large carriers, agriculture and mining companies; trustee positions at non-profit organizations; and he is an actuary. I have personally experienced Jim’s exceptional leadership in his position as Chairman of the Many Group (Bought By Many), where I am a non-executive director.
Jim’s global, multi-industry experience in executive and board positions, coupled with his analytical and creative mind, brings to life a fascinating perspective on current insurance challenges and opportunities.
This discussion with Jim provides inspiring insights on the past, present and future of insurance. I trust you will enjoy reading this interview as much as I enjoyed preparing it.
A Quote from Jim
“The greatest similarity overall is that all businesses are dependent on people. Managers have to be good communicators and good strategists, whatever the industry. When I look back at my different interests, it’s always the people I remember rather than the products.”
David Schapiro (DS): Could you please tell us a bit about yourself and your journey in insurance?
Jim Sutcliffe (JS): My father had an insurance agency; I began working in his office when I was a teenager — that’s 50 years ago…
As I grew up, I formalized my insurance profession by becoming an actuary and worked internationally across life and non-life insurers, at companies with operations in several countries such as South Africa, the UK, US, Canada, the Netherlands, and Australia. Although trained as an actuary, I moved into more operational and management positions, utilizing my actuarial knowledge but not formally working as an actuary.
After over 30 years, my final full-time position was Group Chief Executive Officer of Old Mutual plc. After leaving that position in 2008, I now primarily serve in chairman and director positions in insurance and other industries, such as agriculture and mining. The insurance companies include traditional established organizations like Sun Life, and insurtechs like the Many Group (Bought By Many) and Cover Genius.
Although the formal board membership is usually a non-executive director position, I enjoy the business operations and prefer to be involved as much as possible in the companies’ business.
DS: With such breadth and depth in your career, could you please share with us one of your key insights?
JS: I would say that the key insight is that although there are differences across industries, business models, and geographies, there are also similarities and many lessons to be learned. I have found this to be true in international and domestic businesses, tangible businesses (like mining), and intangible businesses (like insurance).
I try to understand these differences and similarities and learn the relevant lessons that can be applied across geographies and industries.
DS: Could you please share some of the differences, similarities and key learnings across insurance and mining?
JS: Mining can require cash flow models of over forty years, similar and even longer than many insurance models. There is a lot of stochastic modeling in both insurance and mining. In insurance, statistics is a basic proficiency, but not in mining.
In insurance, the customer pays first. So, off-the-cuff, the business is very scalable. It’s “only” up to your operations and systems, but you need to scale a profitable book of risks/business. In mining, you first invest a lot before seeing any return, so a priori it’s harder to scale; but once you have scaled there are fewer surprises in the “book of metal” (vs risks) you have mined.
Mining requires a lot of yield optimization (e.g., need to excavate 12 tons of earth to yield X kilos of metal, the goal could be to reduce that to 9 tons to get the same X kilos of metal). There is also yield optimization in the insurance sales pipeline. You could compare the waterfall of clicks to sales/customers in a D2C insurance business to the waterfall of stone to metal in mining, or the “sales funnel” to the “mining funnel.”
In mining, sequential management is critical. If you need to excavate on average 100kg metal per week, that average could mean fluctuations between 80-120kg metal per week. But it’s a sequential process: when it’s only 80kg per week in one element, it kills the rest of the process sequence. To some degree this is similar to the process of claims handling in insurance, which also has a series of steps/processes. In mining, the Theory Of Constraints is extensively used to model and optimize these processes — in insurance to a lesser degree.
DS: In our discussions, you touched upon the mortal danger of working in a mine — could you please elaborate on this?
JS: Employee safety is at the core of the mining business. Your employees might get hurt or die at work. In insurance, primarily “only” your customers can be hurt/die.
In mining, you need to be prepared to handle disasters — to manage the fact that some employees might die. Therefore, employee health and safety are first and always top of mind at the board and executive level.
From a board perspective, the need to address the potential deaths of employees at work puts other business issues into perspective. Along these lines there is a unique challenge in how to motivate mining employees for long term employment.
DS: What are some of the unique challenges in insurance?
JS: In insurance, the customer is buying peace of mind — it is not a tangible product that has a joy of purchase, like buying jewelry.
The insurance brand is made at the point of claim, not point of sale. This is an inherent challenge that has been hindering the insurance brand for decades. You can gamify the point-of-sale experience in some insurance products (e.g., telematics auto insurance), which will make the point-of-sale fun, but it does not change the ecosystem.
As long as the customer has no real reason to be in contact with insurance companies until the point of claim or renewal, the situation stays the same.
DS: How has the insurance companies’ relationship with its customers changed over your time in the industry?
JS: In the “good old days”— decades ago — the insurance agent would visit the insured family once or twice a month to collect the payment, checking on how they are doing and handling any claims if necessary. This maintained a constant contact and relationship between the insured, the insurance agent and company.
These insurance agents were often the pillars of the community, but the agents’ cost became a substantial part of the premium in parallel to the decline in insurance margins. Insurance companies began to require their agents to increase sales volumes and the agents became more focused on selling premium than serving the customers’ needs. This required regulation to get involved, and insurance got a bad reputation.
Today, what consumer really wants a lifetime relationship with their insurance company?
DS: In which ways do you see the “new” digital world influencing the insurance industry?
JS: Today, only digital insurers can really afford an ongoing relationship with their customers. In any other model it is too expensive. This is an inherent advantage. Digital insurers can also create additional opportunities to engage with their customers, and they can make it easy and even fun to buy, renew, and claim.
Insurers need to find a way to maintain ongoing contact with their customers in a mutually beneficial way — not just to offer new products. This could include proactively avoiding and seamlessly handling claims (e.g., using mobile phone apps for auto or home claims) or providing virtual care (as Bought By Many has done by acquiring FirstVet, which provides online veterinary services).
But not all digital insurers have similar business and customer retention models. Two insurtech businesses I am involved with have very different models: 1.) Cover Genius has hundreds of thousands of sales a month, most of which are one-time (non-recurring) customers/transactions, and 2.) Bought By Many has hundreds of thousands of insured pets (customers) where retention is very high and is an important key performance indicator (KPI).
DS: How can a traditional insurer that has been around for decades/centuries with a large book of business and very old IT systems become digital?
JS: This is a multifaceted challenge, but it’s not just an IT issue. Traditional insurers sometimes have a fixed concept that the way to succeed is with a multi-product/complex-product approach — home, auto, pet, travel, life, health, commercial — which requires complex systems. As many traditional insurers have grown via M&As without merging systems, the result is often a spaghetti of systems.
Digital and new insurers tend to keep it simple: focus on specific markets, simple products, and lines of business.
In my opinion it is better to have a company that does simple things than a company that does complicated things. Strategic simplicity creates large sustainable companies.
DS: Are there any final thoughts you would like to share?
JS: The greatest similarity overall is that all businesses are dependent on people. Managers have to be good communicators and good strategists, whatever the industry. When I look back at my different interests, it’s always the people I remember rather than the products. And in every industry, while a good brain always helps, the ability to manage people is the key skill for the CEO. And for the board, together with strategy, advising on people, hiring, succession, paying, firing are all key areas where directors can help.
Jim Sutcliffe – Bio
Jim Sutcliffe is the Chairman of the Board of Sun Life of Canada (UK), the Many Group (Bought By Many) and Cover Genius, and a director of Liberty Holdings in South Africa, Gunn Agri Partners in Australia and SFA, a leading PGM mining consultancy. He was Group Chief Executive Officer of Old Mutual plc, an international savings and wealth management company, until he retired in September 2008, and subsequently Chairman of Sun Life Financial and a director of Lonmin plc.
Prior to joining Old Mutual plc in January 2000, Mr. Sutcliffe spent most of his career with Prudential plc, an international retail financial services group. He is a Fellow of the U.K. Institute and Faculty of Actuaries. Mr. Sutcliffe was formerly a director of the U.K. Financial Reporting Council, Chairman of its Codes and Standards Committee, and Chairman of its Board for Actuarial Standards.