The Future Is Now For Insurance CEOs

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Episode 14 Reinventing Insurance podcast

Paul Ricard and Michael Moloney

8 min read

Most large organizations can stifle innovation very quickly because the organization is tooled to doing things in a certain way. There's a future position in Life insurance rapidly emerging. It’s about innovation. It's about creating a new pie. And that would benefit everybody
Mick Moloney, Oliver Wyman, Global Head of Insurance, Asset Management, Actuarial

In this episode of Reinventing Insurance, Mick Moloney, global head of insurance, asset management, and actuarial at Oliver Wyman joins our host Paul Ricard to discuss current industry trends, and opportunities for insurance CEOs to adopt an offensive stance and win in 2024.

As leaders face this new year, they need to be sharper than ever on where they truly differentiate. We believe the future is now. The trends of the last decade are continuing to accelerate, with a convergence on fully customer-centric experiences, fully digital operating models and incorporating generative artificial intelligence (AI) as a co-pilot within your workforce.

In this podcast, Mick and Paul discuss:

  • The state of the insurance industry, including generative AI, growth opportunities, meeting customer demand and delivering shareholder value.
  • Innovation and what life and property and casualty (P&C) insurers need to do differently.
  • Three growth paths for life insurers today.
  • Trends, revenue opportunities, and the current forces impacting the P&C insurance industry.
  • The asset management-led insurer model, and how it’s disrupting the industry.
  • The actions insurance CEOs should take to drive growth, sustain momentum, maintain relationships, and drive profitability.
  • Key themes and insurance opportunities from our publication The Future Is Now.
  • For more industry insights, subscribe to Mick's Reinventing Insurance newsletter

This episode is part of our Reinventing Insurance series, a series that explores best practices for taking a CustomerFirst approach to innovation within Insurance. Throughout this series, host Paul Ricard discusses lessons, challenges, and new ways of working with guests who will share their first-hand experiences.

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Paul Ricard: Hi everyone, and welcome to Oliver Wyman's Reinventing Insurance podcast. I'm your host, Paul Ricard. Today I'm delighted to welcome Mick Moloney, who is a Partner and Global Head of Insurance, Asset Management, and Actuarial at Oliver Wyman. Welcome Mick.

Mick Moloney: Thanks, Paul. Delighted to be here.

Paul: So, why don't we start? Actually, before we start, I want to say it's pretty cool to have sort of a crossover episode here. Because this is the Reinventing Insurance podcast, and you're also running the Reinventing Insurance newsletter for Oliver Wyman, where you're sharing a lot of perspectives about the industry. So, I feel there's a meeting of the worlds here, which is going to be pretty cool.

Mick: Cross-pollination.

Paul: Exactly. Why don't we start with you telling us a little bit about your role and what's in your purview at Oliver Wyman?

Mick: Sure. As you know, I lead our Insurance, Asset Management, and Actuarial Practices. That’s probably 700 or 750 of our folks with a concentration in the US and Europe, with a solid and growing footprint in Asia-Pacific, where we're in Hong Kong, Singapore, and Japan, and growing pretty rapidly there. And we serve Life and P&C insurers within our actuarial practice, healthcare insurers, and asset managers, and with a very significant overlap between asset managers and insurers. And we consult with them on a full range of topics from more strategy and management consulting issues, in terms of how do I grow my top line? Am I operating efficiently? Am I innovating enough? Am I innovating at scale? Should I buy or sell things in terms of helping me accelerate on how I will meet my strategy?

And then on the actuarial side, obviously we do a lot of work around pricing, reserving, and increasingly around is my actuarial function operating as efficiently as I'd like and giving me the kind of insights that I want. If it moves in insurance, we tend to deal with it. And we're obviously sitting in, by market cap, the world's third-largest public insurance entity in terms of Marsh McLennan. And we obviously collaborate closely with Marsh, Guy Carpenter, and Mercer, particularly when they can be helpful to our clients. They are obviously very big intermediaries sitting on a lot of data, sitting on a lot of expertise. We like to think that we're unique in having management consulting, strategy, and actuarial sitting within that kind of data lake and with the ability to bring those insights to clients. So that's us.

Paul: Terrific. We're going to have a lot to cover that spans your remit over the next few minutes. And in this episode, we’ll talk about the state of the industry and some of the big opportunities for insurers. But before we go there — you mentioned Marsh McLennan. I think if we take a bit of a detour going back to your prior roles, I know among others that Marsh McLennan has been a big part of your career. And I know actuarial sciences is also a big part of your career. Why don't you tell us a little bit about your background before we go forward together?

Mick: There isn't much of it that's disconnected from Marsh McLennan. It seems like a very long time ago now, but I originally joined Mercer in Dublin, Ireland in 1990. Initially, as a retirement plan actuary and then as an investment actuary. I stayed with Mercer until I qualified as an actuary in late 1995. Then I went to work for six years for a startup consulting firm, running it in the UK for a period of time. I moved back to Mercer in 2002, and set up and ran a European group that Mercer had and then a global group that Mercer had doing asset-liability management risk, risk management, and pension risk transfer for large clients. Moved to New York, which is a longer story that I'm sure we won't get into here, in 2009 with Mercer, and moved over to Oliver Wyman at the beginning of 2012. So, I've just had my 12th anniversary with Oliver Wyman.

Paul: Right. Happy anniversary.

Mick: Somewhere, I need to clip Marsh and Guy Carpenter before my career is complete. Marsh McLennan's a great company, it's been great to me. It's been a terrific environment for what I'm interested in doing.

Paul: Terrific. And obviously in and around the insurance industry for all that time.

Mick: Yes, in various shapes and forms. And in balance-sheet businesses, I would say, for the entire time.

Paul: So, let's get right into it. I would like to start by doing a snapshot of the state of the insurance industry. And getting a sense of where things are in terms of meeting customer demand, delivering shareholder value, the winners, the losers. And it’s a bit of a leading question because I know you have an interesting way of looking at value in the industry. Why don't we start there?

Mick: You and I have had lots of conversations about this, so I'm sure you'll jump in with your views as well. I think in the way you're asking the question there is hinting at the fact that, and it may be slightly hard to describe for anyone listening, but we have various publications including my Reinventing Insurance newsletter, which has the chart that I'm about to describe.

Paul: For the record, Mick asked me multiple times if it was possible to attach a slide to the podcast and the answer was no.

Mick: We decided to save those listening on their commutes the hassle. So, the chart, if folks can picture it, is one that on the vertical axis has five-year total shareholder return as a measure of value creation. And on the horizontal axis, it has a forward price-earnings measure. And you can think about that as really being investors' views of the growth prospects of the individual company and the industry.

And if you can picture that scatterplot for public insurers, and I'll keep it simple for the moment and just talk about US public insurers and then we can kind of expand it globally from there, but what you observe — and there are obviously differences in terms of individual companies — but what you observe at the most macro level is that the public Life insurers are generally in the bottom left-hand quadrant of that graph.

So, what's that telling you? It's telling you that for what are very often capital-intensive and high-beta businesses, they have returned less than the market over the last five years. And they're trading on low, mid, and in some cases, low teens. But the majority on average are trading in the mid-single digits, by which I mean five, six times the forward price-earnings measure. So, it's saying that investors are looking at them and see they're operating in what are largely very mature markets. Investors are suspicious. They are doubtful about the ability to generate growth going forward or are concerned about that growth meeting the cost of capital of the business itself. So, obviously if I'm generating growth but it's not meeting my cost of capital, more growth is bad rather than good.

Paul: Maybe we’ll pause on this, and we can go to the other parts of the charts later. So, what I'm inferring from this is that the Life insurance industry is in a unsustainable spot on that chart. Is that fair?

Mick: I think it's probably difficult to conclude just from that chart that the industry is in an unsustainable spot. And I would call out that there are several companies in there that are in a more sustainable spot and have crown-jewel capabilities and businesses that investors value. But I think at the core, what it's saying is that for core annuity and Life markets in the US, and I would say the picture is similar for other developed geographies globally, that investors like the diet that they've been put on of having companies return a lot of capital, and not reinvest a lot of that capital in the business. And they're looking at the ability to differentiate by way of product innovation and distribution and are suspicious that there is a crown jewel there in a lot of cases. Now a lot of those companies no longer have proprietary distribution. A lot have products that while there is some innovation, they are generally not that hard to replicate.

And a very big component of that is that the economics are driven very significantly by your ability to generate excess spread within a kind of general account. And that is a model that is being very heavily disrupted by what we describe as asset management-led insurers. So, it is an asset manager, very often a private equity or debt manager, that has what they consider to be a significant capability around sourcing, originating, and structuring private debt that can be put behind these liabilities. That's causing a lot of disruption, particularly for incumbents that don't have an equivalent capability.

Back to your question. Yes, there is a lot of consolidation already happening because consolidation happens either by way of a company buying another, or in the Life sector happens by way of reinsurance transactions occurring. There are also just a number of Life insurers where the question you ask when you see them is, is that business at scale? Does the landscape need that number of balance sheets doing things that are not necessarily that differentiated? And I think we're already seeing those tectonic plates move around and kind of accelerate pretty fast in the US.

Paul: And once you uncover what's happening — consolidation, reinsurance transactions, the advent of that asset management-led model that has really disrupted a lot of things lately — what is left is if I'm not going down that route, the expectation would be, do I have proprietary capabilities around distribution, around product innovation? And to your point, distribution has been outsourced and all these things. So, these companies can at times be left in a difficult position as a result.

Mick: Yeah, they can. And if I take us off in a slightly brighter direction.

Paul: Please.

Mick: Look, the irony of it in a lot of ways is that when you think about what a Life insurer is at the core, it's an institution capable of manufacturing and delivering in a retail setting a guarantee to somebody wrapped around something that they care about. At the highest level, that is about financial security for an individual. They want financial security and an ability to get certainty around things that they are worried about. If you abstract that up to the highest level, what that tends to get referred to is financial wellness. And on any number of measures, financial wellness is a massive opportunity in the US.

So, there is a huge opportunity that has not been cracked by anybody to go after what is either white or gray space in the US that you would think more insurers would be investing more heavily around. In reality, I think the vast majority of them appreciate that there's an opportunity there, but cracking that opportunity requires a significant risk appetite in terms of trying things with the foreknowledge that 8 out of 10 things that you try are going to fail. But within the two, there may be a path to a much brighter future that would see you growing.

On the one hand, I think it's a huge opportunity. On the other hand, I kind of look and go, who is really going after that? And why aren't they going after it? And I would say nobody is really going after to the extent that I think they really need to. And one of the handicaps in terms of them going after it is that most public Life insurers, as I mentioned, have gotten themselves into a position where returning capital to shareholders has become, if not the primary goal, then one of the top goals. And once you're in that position, it's very hard to convince shareholders that you're going to retain more money in order to invest to go after something that looks as uncertain as this. And I really think whoever can crack that conundrum may lead us to a better place for the industry. That's what I really hope happens.

Paul: Here, you need to shift from value to growth. You need to shift the way your organization is set up. And I think another thing that's important to your point on financial wellness, what I found oftentimes is it can be mostly a coat of marketing paint on top of, ‘I'm just going to push my existing products.’

Mick: Yes, I agree.

Paul: Versus solving a broader ecosystem of needs from customers that I may not solve by myself, where I may need to partner with others. So, I feel like it's not like any of these problems is unsolvable, but it feels like the life insurance industry has a lot of these problems to solve at once.

Mick: There isn't only one way forward. I think if you look at the routes, it's probably wrong to describe them as bookends because they're not necessarily mutually exclusive. But route one is, I am going to be an asset management-led insurer. The primary thing I'm concerned about in that model is my asset management capability. And what I'm really concerned about is at the end of the day, because things will go through a process of shaking out, do I have an asset management capability with asset origination and structuring that's at scale and capable of competing with the bigger private equity firms? The archetype of the model is Apollo Athene, and in Europe it’s Athora. KKR has Global Atlantic, Carlyle has Fortitude, Ares has kind of its own, and Blackstone has lots of footprint in that space as well. So, these are very large, successful private equity and debt firms that are viewing an insurance balance sheet as one leg of funding for the core operation.

Now, if I'm starting as an incumbent, I can choose to go in that direction because to your point about rerating, on that graph that we described, the private equity firms are in the top right-hand quad. So, they are well perceived, have delivered strong returns, and are rated for growth going forward. If I'm in the bottom left, I can look at that and go, I want to replicate that model. But the question I need to ask myself then is, do I have the resources and capabilities and am I organized properly in terms of flipping my model on its head?

As you know, in our Future Is Now for Insurers: 10 to do’s for CEOs article, that one was strong last year, and very strong this year in terms of what we did. But the two other opportunities in there that are different ways out are one that says you need to 10x your innovation. That’s the route of I'm going to do something different and really grasp the nettle of this challenge. I’m going to do something uniquely different for a big enough group of consumers that this thing will lead me to a different place, with all the incumbent challenges that we've talked about.

The idea called ‘know what your secret sauce is.’ What I see playing out is that there are insurers in the landscape today that aren't headed for being the asset management-led insurer, don't have proprietary distribution and proprietary relationships with consumers, and are in the mindset that somehow product innovation and distribution is a sustainable value-adding position for consumers.

And that, as you know, is one that requires the most careful exploration and pressure testing because it's not obvious to me that is articulated well enough and executed well enough to really be something different. So those three opportunities are: (1) become an asset management-led insurer, (2) 10x your innovation, and (3) understand what your secret sauce is at a very deep level.

I appreciate I can sound a bit down on the Life insurance industry at times. I'm actually not. I think there's just a future position that looks very different to where we are today, part of which is very rapidly emerging. Another part of which I would like to see emerge much more with that innovation point. Because I just think it's not about dividing today's pie in a better way. It's about creating a new pie. And I think that would benefit everybody.

Paul: It seems like with these three paths, the impetus for marching down one of these paths quickly has increased also because this asset management-led model has really increased in prominence.

Mick: The other ones on the page then are the asset managers. For asset managers, there is a lot of pressure in that system in terms of scale, in terms of the push into alternatives, and in terms of various factors and features. But again, there's a set of dispersion in there and an overlap with the business. And then the other one is that the brokers are also in the top right-hand corner of the chart. So, if you take MMC, Gallagher, AON, Brown & Brown, WTW, they are rated for continued growth and have provided returns significantly in excess of the broader stock market over the last five years in most cases. And really, the insight there I think that folks tend to take from that chart is that the economics in the landscape overall have indexed more toward distribution than to balance sheet and manufacturing. That distribution is really where a lot of the economics have come out now. And you get all sorts of questions then: Is there something carriers should be doing in terms of moving more towards that? How does it work? And so forth. But that's the current state of play.

Paul: The market appreciation is toward the distribution. I think we've been talking about it for years, which is if you look at the entire insurance ecosystem, where do insurers ultimately land? I think what we're describing is, and I'm going to take a P&C-centric view of the world. Everything that’s balance-sheet related, am I going to be taken over by reinsurers and other sources of capital? Everything that's customer facing, whether it's a corporate customer or a retail customer, is this what the broker is doing and continuing building on? And then what is left for me as a competitive advantage? There's a little bit of a question mark around a lot of these P&C players to determine what's going to be my way forward? And how am I going to differentiate myself? And how am I going to generate more value and secure either a spot in the top right or make sure I don't go down the bottom left?

Mick: I agree. And see if you agree with what I'm about to say. The interesting thing for me about the P&C landscape though is that it is a much richer landscape of levers that I can pull as a management team in terms of how I want to go about creating that value. If you look at it on the property and casualty side there is a lot of ability, but not without a lot of challenges to differentiate on underwriting. And I think you can look at the landscape and clearly pick out people who are more disciplined on underwriting, more disciplined in terms of capital, more disciplined in terms of their reinsurance strategy, how they think about it, concentrate management and so forth. And that's becoming more important particularly as we've had a period where capital has been scarce. I think we're entering something where markets are getting softer, and capital may be more available. But how and where I am comfortable taking catastrophe risk in a portfolio is a very significant question going forward.

So, the ability to differentiate on underwriting is kind of high. The ability to differentiate on how I manage my broker relationships is also significant. The ability to differentiate based on my claims experience is high. And particularly on the commercial side — these are global businesses serving large corporates — they want to serve somebody who can serve them in multiple points. So, my ability to make decisions about my global footprint is bigger. So, I think within P&C there are a richer set of levers that I can pull.

But as you know, we're coming out of an historic hard market cycle. And then the question really for a lot of P&C companies is, how am I going to maintain growth, as rate is no longer my friend from a revenue-growth perspective. So, all that to say, I think P&C businesses, to some extent, are in a different position.

Paul: You referenced our latest publication, The Future Is Now for Insurers: 10 to do’s for CEOs in 2024. If you were an insurance CEO today, in February 2024, what would you do?

Mick: I'd start with a couple of things that I think are general, no matter what kind of insurer you are. As you know, we saw massive hype last year around generative artificial intelligence (Gen AI). And there's also an interesting piece of research that we've done looking at industry exposure and potential for disruptive innovation driven by Gen AI with a framework that looks at the structure of the industry and the structure of the roles in it. And also, at the amount of value that can be created through those roles. It’s very clear from that analysis that insurance is a place that has very high positive disruptive potential in terms of somebody's ability to do something. Also, I would say, and it's maybe just a function of where we are in the cycle with it, that most of what we saw our clients do with Gen AI last year was almost a grassroots effort to try and educate a workforce around it to release it into the organization, to begin to conduct pilots, and to begin to learn. All of that I think is obviously to the good. But what we haven't seen yet is somebody top-down manage to where the biggest disruptive areas are and really go after those. And that's something I think needs more attention.

The other general point, and this is somewhat tactical, but I think important, is that almost every insurer that I talk to is not comfortable, happy, satisfied, delighted with their ability to get insights fast from some combination of their Finance and Actuarial teams. Why is that becoming more important? I think it's becoming more important because in a lot of cases the external environment is accelerating. In a lot of cases, rules have changed in terms of how I think about capital and I'm not able to think and pivot fast enough.

Paul: The literal rules.

Mick: Literal rules. Exactly. As in: You need to think about capital this way, you need to hold it in these places, and you need to manage to this ratio. In other cases, and this is particularly true on the Life side, the speed and agility of the competitors I'm going up against is very different to what has been there historically. And I need a machine that is capable of allowing me to make decisions much faster and decide where I want to move things. So, I would say that's another area that is really around capability.

For P&C insurers, it’s not quite the highest-order question, but the question around coming off a historic hard cycle in just about all lines. And it's clear that that's beginning to moderate in a number of places. The pace of moderation and the ultimate endpoint, I think, will change. But that brings up lots and lots of issues around how should I be positioning now to ensure that relative to others, I sustain momentum, stay in the lines that I want, and maintain the relationships that I want while also maintaining profitability.

And then look, the one perennial that picks up every time is around what we would describe as performance transformation — but performance transformation with a cost element. I would say 6 out of 10 of any set of management teams that you pick will talk now about the cost programs that they are doing, their efficiency, and how they're thinking about it. And the tone of a lot of those conversations. I would say, look, we’ve been running cost programs. It's not new that we're running a cost program, but now we need to think about how we do things slightly differently as we move forward. And one of the ideas in our publication we share around this is managing shared services across an organization, like a business rather than just a cost that gets handed to the organization every year.

Paul: It leaves the opportunity for someone adjacent to the insurance industry to come in and offer something that's very differentiated. And again, for some of these P&C players, there's more of an impetus to act relatively quickly. Look, it's one thing to say we need to spend a lot more on innovation. What do you think at the heart of it, whether I'm a Life insurer or a P&C carrier, what do you need to do fundamentally differently, especially as a CEO or C-suite executive? What do I need to instigate or kickstart to make it happen?

Mick: I think it comes in multiple parts, and this is not necessarily an order. But as you know, and I’ll sound a little cynical for a minute here.

Most large organizations can stifle innovation very quickly because the organization is tooled to doing things in a certain way. And particularly if you're a 100- to 150-year-old company, guess what? There's a lot of rigidity to how the machine operates. And you have fragmented data, you have fragmented policy admin systems, and you have very large sprawling empires in terms of how decisions get made. So, it demands a vision around the space and the passion of a CEO to say, we're going to go after this space. I have an idea of how to do it, and this is what we're going to do.

The things that sit behind that are around, what's the mechanism by which I'm going to do it? Now, when I say mechanism, the reality is if I'm breaking ground, I need to be prepared to fail. And it indexes a little bit more toward a venture capital mindset than it does a more mature business management mindset. Which is that I can make a number of different moves. I can say there's an adjacent space where I am going to get into it inorganically, and I can make an acquisition this way and integrate it. Now, I would say the interesting thing to me is that if you look at the group benefits space in particular, then that's adjacent to various things in the health space. And certainly, some of the very big players are looking over into that space and saying, hey, what do I want to have there? So, I don't know if it's possible to go the other direction. Right now, there are insurers that have health businesses, but is there an adjacent space there that I can get into through acquisition? But there is an inorganic element to it, which is how much risk am I willing to take in order to buy that business over there, integrate it, and create a synergy?

At the other end of the spectrum is, I'm going to begin to do things organically and I need to experiment. I need to learn, and I need to be prepared to invest. I need to understand how I'm going to stage investment. I need to have a portfolio of things that I'm learning, and they can't be hobbies that folks have off the side of their desk. And I'm going to manage that portfolio myself. There's a framework for doing that which says, here's how to run an incubation business unit or an innovation business unit with that same kind of venture discipline in it. I would like to see organizations do more of that.

And then as you know, there's an element to it in terms of culture that says it's okay to fail. I'm not asking you guys to do this stuff, this is where we're going to do it, and we're going to move people around. The most successful companies, I think, are those where at least some of those conditions have held. You always get somebody looking back and going, yeah, that was super obvious what they did there. But the point was it wasn't obvious at the time, and it involved a certain amount of risk-taking and moving on. It requires a vision and level of conviction from the top down.

Paul: Ultimately, it needs to start from the top also because the conviction needs to be made in the boardrooms and with the shareholders. There needs to be new metrics or different metrics and a clear throughline between how I am going to measure success from innovation. And it's very different from a more mature business down the line.

Mick: In a way, I've got to build a learning engine and run that to scale.

Paul: I really like that learning-engine terminology.

Mick: Particularly when it comes to shareholders and boards in the outside world, you've got to earn permission to do more and more. And I think that building that permission is a tough thing to do in various parts of the landscape. Particularly in Life insurance, I think it's critical.

Paul: Setting the vision is great, but then what's your beachhead? What's your starting point? And how do you build momentum progressively? Essentially, that's what you described also. What are the first proof points? Am I going to demonstrate to earn the right to do more from the board?

Mick: How do I get myself under the flywheel?

Paul: So fascinating. I'd like to shift gears. As you look across the Americas, Europe, Asia, what are some the flavors and differences that you've been picking up? You’ve been spending time in Europe. I know you were at the International Insurance Society (IIS) Global Insurance Forum in Singapore a few months back and are engaging with folks across the different markets. What strikes you as the big differences among these regions?

Mick: The biggest Life markets globally are super mature. And if you look at it, the story that we started to describe has started in the US, and is moving to the UK, and it is looking at Japan. And even with the issues with a couple of examples of the privately backed insurers in Europe, I think that will begin to happen quickly there, too.

Paul: And it's interesting because obviously there are different flavors, different challenges, and opportunities. But having spent some time in Asia recently, I think if you look at many of these markets, the two main distribution avenues for Life insurance are: agents and bank insurance. And in both cases, there's huge risks around these things. Bank insurance is dependent on partners. And on the agent side, what I found fascinating is yes, it has been the way to go, and it has been a very profitable opportunity for everyone. And then Covid-19 hit and suddenly many more opportunities arose. And for whomever was considering getting into the agent workforce, there were many more interesting avenues available. And now as a Life insurer using this as one of my primary channels, I'm at risk of essentially not being able to use that channel anymore. So how do I reinvent it? How do I make it more attractive? How do I potentially consider alternate opportunities? I feel like we're seeing different but similar problems as well in these different markets.

Mick: Switching away from Life for a moment, I think the other interesting thing, particularly as it relates to Asia, is that we’ve been talking a lot about global accident and health businesses.

The embedding of insurance and customer journeys for relatively low-transaction events, but at a very high volume. You see it in lots and lots of places. In particular, it seemed a lot more of the conversation in Asia was around those kinds of business models and the way that works. And that's interesting. I would say, I don't see huge differences within commercial P&C businesses in terms of the regions. The factors tend to be somewhat similar. And then the multi-lines tend to be a little bit more of a European phenomenon, somewhat driven by the evolution of needing to have a broad product shelf for a set of agents in various home countries and so forth.

Paul: To your point on embedded insurance, what I find interesting is that there is a very transactional way to think about this. But there is also an element around, how can I have a broader offering that either I'm orchestrating, and I have my set of products and a set of partner products that I'm delivering, or I'm part of a broader ecosystem.

We’re Oliver Wyman, we're part of MMC. We're very much embedded in the insurance industry. We talked a little bit about Oliver Wyman's value proposition at the top, but the ambition, the vision, the kind of hard problems we're looking to help our clients with — can you unpack this for us? This is very much something I'd love to get your take on.

Mick: What we want is to be uniquely valuable to our clients. Our clients being insurers and asset managers and those moving around in that ecosystem. And we generally think about, how do we create that value in four transformation moments? I'll give you the transformation moments at a high level and then double click on each.

There’s customer-led transformation, which is that I want to figure out a way, or I'm transforming myself around unique value creation for the customer, which is consistent with what we're talking about. The second is performance transformation, which is, I want to improve the bottom-line of my business in some way. The third is deal-driven transformation, which is I either want to buy something or I want to sell something. It's going to be transformative in terms of the value of my business. And the fourth is stakeholder-led transformation. That can be an external stakeholder, an activist investor. But more often it is that I have a new management team, or I have a new executive in this role. I have something driven by a change in some stakeholder inside the organization.

We’re orienting ourselves around serving the industry in those four transformation moments. In one way, there's very little that's happening that's meaningful that you can't assign to one of those. The customer-led transformation is just what we're talking about. How do I reorient the industry to create more value for individual customers? It can be, how do I crack financial wellness? How do I really go after the SME space for property and casualty?

The performance transformation is just what we were talking about, which is how do I use Gen AI to really transform what I'm doing inside the organization? How do I move from a cost view to a profit-center view? How do I really change the nature of what it is that I do and how I go after it? With the deal-driven one, we have any number of examples of IPOs or restructuring or various things.

And the stakeholder one is as management teams turn over, and that tends to go in cycles, but if you take a CEO with a tenure of 5 to 10 years then every time that turns over, you step into that space. That happens very regularly. So those are the transformation moments.

The other part is your question of what's exciting about Oliver Wyman in that space? And how do we think we're uniquely placed to help? And I'd say a few things, and echo some of what I said at the beginning. One is we're a management consulting firm with a world-class actuarial capability specialized in insurance and asset management, sitting inside what is one of the world's largest global powerhouses of anything that moves in insurance. So, I kind of joke that if you think of the amount of knowledge that we have in 1166 here in New York, show me another building in the world that has that footprint into what's happening inside the insurance industry.

I think we bring a unique set of insights and capabilities. And we also want to do it in a way where we're partnering with our clients. We're working shoulder-to-shoulder with them. We have competitors with various styles. I would say what's unique to us is we're content and specialist focused, but with the ability to deliver with a transformative view and lens on it benefiting from a lot of the knowledge that sits in the organization.

And what excites me about it is how we are talking internally about doing that. We have this phrase that makes people smile, we are already a long way toward being a juggernaut consulting business in that space. We have a very large team with a lot of expertise, but we have our eye on something that would 2x or 3x that over the course of the next five years. And we think we have a permission to win and an ability to deliver value that we're very excited about.

Paul: Terrific. And obviously helping drive a lot of the change that we've been talking about in the last few minutes. Well, that was super-insightful. I really enjoyed our time together. Before we wrap, care to share a few words of wisdom for our audience based on everything we talked about?

Mick: The industry we serve is massive, complicated, and global. If I had a magic wand and was looking at it, I think there's a lot of transformation I'd like us to support in the Life space to take the industry to a better spot. I think the P&C side of things is starting in a very different position, but I'm very excited about the transformation of Gen AI and the opportunity for that. And also, the next pivot of the industry through the soft-pricing cycle. And then on the broader asset management and private capital side, it's a complicated jigsaw. But I just think this adding a balance sheet to those models and using that to fund what is a very sensible position is very exciting. So, I would say thanks to our clients and those that are trusting us to do this. We're excited to partner with the industry.

Paul: Terrific. Well, Mick. thank you for your time. I really enjoyed the conversation.

Mick: Pleasure. Thank you for having me.

Paul: That was Mick Moloney, Global Head of Insurance, Asset Management, and Actuarial at Oliver Wyman. I'm Paul Ricard. Thanks for listening. For more information about our Reinventing Insurance series, you can find everything on our website at OliverWyman.com/reinventinginsurance. Thanks for listening and I'll see you next time.

This transcript has been edited for clarity.

    In this episode of Reinventing Insurance, Mick Moloney, global head of insurance, asset management, and actuarial at Oliver Wyman joins our host Paul Ricard to discuss current industry trends, and opportunities for insurance CEOs to adopt an offensive stance and win in 2024.

    As leaders face this new year, they need to be sharper than ever on where they truly differentiate. We believe the future is now. The trends of the last decade are continuing to accelerate, with a convergence on fully customer-centric experiences, fully digital operating models and incorporating generative artificial intelligence (AI) as a co-pilot within your workforce.

    In this podcast, Mick and Paul discuss:

    • The state of the insurance industry, including generative AI, growth opportunities, meeting customer demand and delivering shareholder value.
    • Innovation and what life and property and casualty (P&C) insurers need to do differently.
    • Three growth paths for life insurers today.
    • Trends, revenue opportunities, and the current forces impacting the P&C insurance industry.
    • The asset management-led insurer model, and how it’s disrupting the industry.
    • The actions insurance CEOs should take to drive growth, sustain momentum, maintain relationships, and drive profitability.
    • Key themes and insurance opportunities from our publication The Future Is Now.
    • For more industry insights, subscribe to Mick's Reinventing Insurance newsletter

    This episode is part of our Reinventing Insurance series, a series that explores best practices for taking a CustomerFirst approach to innovation within Insurance. Throughout this series, host Paul Ricard discusses lessons, challenges, and new ways of working with guests who will share their first-hand experiences.

    Subscribe for more on: Apple Podcasts | Spotify | Google | Amazon Music

    Paul Ricard: Hi everyone, and welcome to Oliver Wyman's Reinventing Insurance podcast. I'm your host, Paul Ricard. Today I'm delighted to welcome Mick Moloney, who is a Partner and Global Head of Insurance, Asset Management, and Actuarial at Oliver Wyman. Welcome Mick.

    Mick Moloney: Thanks, Paul. Delighted to be here.

    Paul: So, why don't we start? Actually, before we start, I want to say it's pretty cool to have sort of a crossover episode here. Because this is the Reinventing Insurance podcast, and you're also running the Reinventing Insurance newsletter for Oliver Wyman, where you're sharing a lot of perspectives about the industry. So, I feel there's a meeting of the worlds here, which is going to be pretty cool.

    Mick: Cross-pollination.

    Paul: Exactly. Why don't we start with you telling us a little bit about your role and what's in your purview at Oliver Wyman?

    Mick: Sure. As you know, I lead our Insurance, Asset Management, and Actuarial Practices. That’s probably 700 or 750 of our folks with a concentration in the US and Europe, with a solid and growing footprint in Asia-Pacific, where we're in Hong Kong, Singapore, and Japan, and growing pretty rapidly there. And we serve Life and P&C insurers within our actuarial practice, healthcare insurers, and asset managers, and with a very significant overlap between asset managers and insurers. And we consult with them on a full range of topics from more strategy and management consulting issues, in terms of how do I grow my top line? Am I operating efficiently? Am I innovating enough? Am I innovating at scale? Should I buy or sell things in terms of helping me accelerate on how I will meet my strategy?

    And then on the actuarial side, obviously we do a lot of work around pricing, reserving, and increasingly around is my actuarial function operating as efficiently as I'd like and giving me the kind of insights that I want. If it moves in insurance, we tend to deal with it. And we're obviously sitting in, by market cap, the world's third-largest public insurance entity in terms of Marsh McLennan. And we obviously collaborate closely with Marsh, Guy Carpenter, and Mercer, particularly when they can be helpful to our clients. They are obviously very big intermediaries sitting on a lot of data, sitting on a lot of expertise. We like to think that we're unique in having management consulting, strategy, and actuarial sitting within that kind of data lake and with the ability to bring those insights to clients. So that's us.

    Paul: Terrific. We're going to have a lot to cover that spans your remit over the next few minutes. And in this episode, we’ll talk about the state of the industry and some of the big opportunities for insurers. But before we go there — you mentioned Marsh McLennan. I think if we take a bit of a detour going back to your prior roles, I know among others that Marsh McLennan has been a big part of your career. And I know actuarial sciences is also a big part of your career. Why don't you tell us a little bit about your background before we go forward together?

    Mick: There isn't much of it that's disconnected from Marsh McLennan. It seems like a very long time ago now, but I originally joined Mercer in Dublin, Ireland in 1990. Initially, as a retirement plan actuary and then as an investment actuary. I stayed with Mercer until I qualified as an actuary in late 1995. Then I went to work for six years for a startup consulting firm, running it in the UK for a period of time. I moved back to Mercer in 2002, and set up and ran a European group that Mercer had and then a global group that Mercer had doing asset-liability management risk, risk management, and pension risk transfer for large clients. Moved to New York, which is a longer story that I'm sure we won't get into here, in 2009 with Mercer, and moved over to Oliver Wyman at the beginning of 2012. So, I've just had my 12th anniversary with Oliver Wyman.

    Paul: Right. Happy anniversary.

    Mick: Somewhere, I need to clip Marsh and Guy Carpenter before my career is complete. Marsh McLennan's a great company, it's been great to me. It's been a terrific environment for what I'm interested in doing.

    Paul: Terrific. And obviously in and around the insurance industry for all that time.

    Mick: Yes, in various shapes and forms. And in balance-sheet businesses, I would say, for the entire time.

    Paul: So, let's get right into it. I would like to start by doing a snapshot of the state of the insurance industry. And getting a sense of where things are in terms of meeting customer demand, delivering shareholder value, the winners, the losers. And it’s a bit of a leading question because I know you have an interesting way of looking at value in the industry. Why don't we start there?

    Mick: You and I have had lots of conversations about this, so I'm sure you'll jump in with your views as well. I think in the way you're asking the question there is hinting at the fact that, and it may be slightly hard to describe for anyone listening, but we have various publications including my Reinventing Insurance newsletter, which has the chart that I'm about to describe.

    Paul: For the record, Mick asked me multiple times if it was possible to attach a slide to the podcast and the answer was no.

    Mick: We decided to save those listening on their commutes the hassle. So, the chart, if folks can picture it, is one that on the vertical axis has five-year total shareholder return as a measure of value creation. And on the horizontal axis, it has a forward price-earnings measure. And you can think about that as really being investors' views of the growth prospects of the individual company and the industry.

    And if you can picture that scatterplot for public insurers, and I'll keep it simple for the moment and just talk about US public insurers and then we can kind of expand it globally from there, but what you observe — and there are obviously differences in terms of individual companies — but what you observe at the most macro level is that the public Life insurers are generally in the bottom left-hand quadrant of that graph.

    So, what's that telling you? It's telling you that for what are very often capital-intensive and high-beta businesses, they have returned less than the market over the last five years. And they're trading on low, mid, and in some cases, low teens. But the majority on average are trading in the mid-single digits, by which I mean five, six times the forward price-earnings measure. So, it's saying that investors are looking at them and see they're operating in what are largely very mature markets. Investors are suspicious. They are doubtful about the ability to generate growth going forward or are concerned about that growth meeting the cost of capital of the business itself. So, obviously if I'm generating growth but it's not meeting my cost of capital, more growth is bad rather than good.

    Paul: Maybe we’ll pause on this, and we can go to the other parts of the charts later. So, what I'm inferring from this is that the Life insurance industry is in a unsustainable spot on that chart. Is that fair?

    Mick: I think it's probably difficult to conclude just from that chart that the industry is in an unsustainable spot. And I would call out that there are several companies in there that are in a more sustainable spot and have crown-jewel capabilities and businesses that investors value. But I think at the core, what it's saying is that for core annuity and Life markets in the US, and I would say the picture is similar for other developed geographies globally, that investors like the diet that they've been put on of having companies return a lot of capital, and not reinvest a lot of that capital in the business. And they're looking at the ability to differentiate by way of product innovation and distribution and are suspicious that there is a crown jewel there in a lot of cases. Now a lot of those companies no longer have proprietary distribution. A lot have products that while there is some innovation, they are generally not that hard to replicate.

    And a very big component of that is that the economics are driven very significantly by your ability to generate excess spread within a kind of general account. And that is a model that is being very heavily disrupted by what we describe as asset management-led insurers. So, it is an asset manager, very often a private equity or debt manager, that has what they consider to be a significant capability around sourcing, originating, and structuring private debt that can be put behind these liabilities. That's causing a lot of disruption, particularly for incumbents that don't have an equivalent capability.

    Back to your question. Yes, there is a lot of consolidation already happening because consolidation happens either by way of a company buying another, or in the Life sector happens by way of reinsurance transactions occurring. There are also just a number of Life insurers where the question you ask when you see them is, is that business at scale? Does the landscape need that number of balance sheets doing things that are not necessarily that differentiated? And I think we're already seeing those tectonic plates move around and kind of accelerate pretty fast in the US.

    Paul: And once you uncover what's happening — consolidation, reinsurance transactions, the advent of that asset management-led model that has really disrupted a lot of things lately — what is left is if I'm not going down that route, the expectation would be, do I have proprietary capabilities around distribution, around product innovation? And to your point, distribution has been outsourced and all these things. So, these companies can at times be left in a difficult position as a result.

    Mick: Yeah, they can. And if I take us off in a slightly brighter direction.

    Paul: Please.

    Mick: Look, the irony of it in a lot of ways is that when you think about what a Life insurer is at the core, it's an institution capable of manufacturing and delivering in a retail setting a guarantee to somebody wrapped around something that they care about. At the highest level, that is about financial security for an individual. They want financial security and an ability to get certainty around things that they are worried about. If you abstract that up to the highest level, what that tends to get referred to is financial wellness. And on any number of measures, financial wellness is a massive opportunity in the US.

    So, there is a huge opportunity that has not been cracked by anybody to go after what is either white or gray space in the US that you would think more insurers would be investing more heavily around. In reality, I think the vast majority of them appreciate that there's an opportunity there, but cracking that opportunity requires a significant risk appetite in terms of trying things with the foreknowledge that 8 out of 10 things that you try are going to fail. But within the two, there may be a path to a much brighter future that would see you growing.

    On the one hand, I think it's a huge opportunity. On the other hand, I kind of look and go, who is really going after that? And why aren't they going after it? And I would say nobody is really going after to the extent that I think they really need to. And one of the handicaps in terms of them going after it is that most public Life insurers, as I mentioned, have gotten themselves into a position where returning capital to shareholders has become, if not the primary goal, then one of the top goals. And once you're in that position, it's very hard to convince shareholders that you're going to retain more money in order to invest to go after something that looks as uncertain as this. And I really think whoever can crack that conundrum may lead us to a better place for the industry. That's what I really hope happens.

    Paul: Here, you need to shift from value to growth. You need to shift the way your organization is set up. And I think another thing that's important to your point on financial wellness, what I found oftentimes is it can be mostly a coat of marketing paint on top of, ‘I'm just going to push my existing products.’

    Mick: Yes, I agree.

    Paul: Versus solving a broader ecosystem of needs from customers that I may not solve by myself, where I may need to partner with others. So, I feel like it's not like any of these problems is unsolvable, but it feels like the life insurance industry has a lot of these problems to solve at once.

    Mick: There isn't only one way forward. I think if you look at the routes, it's probably wrong to describe them as bookends because they're not necessarily mutually exclusive. But route one is, I am going to be an asset management-led insurer. The primary thing I'm concerned about in that model is my asset management capability. And what I'm really concerned about is at the end of the day, because things will go through a process of shaking out, do I have an asset management capability with asset origination and structuring that's at scale and capable of competing with the bigger private equity firms? The archetype of the model is Apollo Athene, and in Europe it’s Athora. KKR has Global Atlantic, Carlyle has Fortitude, Ares has kind of its own, and Blackstone has lots of footprint in that space as well. So, these are very large, successful private equity and debt firms that are viewing an insurance balance sheet as one leg of funding for the core operation.

    Now, if I'm starting as an incumbent, I can choose to go in that direction because to your point about rerating, on that graph that we described, the private equity firms are in the top right-hand quad. So, they are well perceived, have delivered strong returns, and are rated for growth going forward. If I'm in the bottom left, I can look at that and go, I want to replicate that model. But the question I need to ask myself then is, do I have the resources and capabilities and am I organized properly in terms of flipping my model on its head?

    As you know, in our Future Is Now for Insurers: 10 to do’s for CEOs article, that one was strong last year, and very strong this year in terms of what we did. But the two other opportunities in there that are different ways out are one that says you need to 10x your innovation. That’s the route of I'm going to do something different and really grasp the nettle of this challenge. I’m going to do something uniquely different for a big enough group of consumers that this thing will lead me to a different place, with all the incumbent challenges that we've talked about.

    The idea called ‘know what your secret sauce is.’ What I see playing out is that there are insurers in the landscape today that aren't headed for being the asset management-led insurer, don't have proprietary distribution and proprietary relationships with consumers, and are in the mindset that somehow product innovation and distribution is a sustainable value-adding position for consumers.

    And that, as you know, is one that requires the most careful exploration and pressure testing because it's not obvious to me that is articulated well enough and executed well enough to really be something different. So those three opportunities are: (1) become an asset management-led insurer, (2) 10x your innovation, and (3) understand what your secret sauce is at a very deep level.

    I appreciate I can sound a bit down on the Life insurance industry at times. I'm actually not. I think there's just a future position that looks very different to where we are today, part of which is very rapidly emerging. Another part of which I would like to see emerge much more with that innovation point. Because I just think it's not about dividing today's pie in a better way. It's about creating a new pie. And I think that would benefit everybody.

    Paul: It seems like with these three paths, the impetus for marching down one of these paths quickly has increased also because this asset management-led model has really increased in prominence.

    Mick: The other ones on the page then are the asset managers. For asset managers, there is a lot of pressure in that system in terms of scale, in terms of the push into alternatives, and in terms of various factors and features. But again, there's a set of dispersion in there and an overlap with the business. And then the other one is that the brokers are also in the top right-hand corner of the chart. So, if you take MMC, Gallagher, AON, Brown & Brown, WTW, they are rated for continued growth and have provided returns significantly in excess of the broader stock market over the last five years in most cases. And really, the insight there I think that folks tend to take from that chart is that the economics in the landscape overall have indexed more toward distribution than to balance sheet and manufacturing. That distribution is really where a lot of the economics have come out now. And you get all sorts of questions then: Is there something carriers should be doing in terms of moving more towards that? How does it work? And so forth. But that's the current state of play.

    Paul: The market appreciation is toward the distribution. I think we've been talking about it for years, which is if you look at the entire insurance ecosystem, where do insurers ultimately land? I think what we're describing is, and I'm going to take a P&C-centric view of the world. Everything that’s balance-sheet related, am I going to be taken over by reinsurers and other sources of capital? Everything that's customer facing, whether it's a corporate customer or a retail customer, is this what the broker is doing and continuing building on? And then what is left for me as a competitive advantage? There's a little bit of a question mark around a lot of these P&C players to determine what's going to be my way forward? And how am I going to differentiate myself? And how am I going to generate more value and secure either a spot in the top right or make sure I don't go down the bottom left?

    Mick: I agree. And see if you agree with what I'm about to say. The interesting thing for me about the P&C landscape though is that it is a much richer landscape of levers that I can pull as a management team in terms of how I want to go about creating that value. If you look at it on the property and casualty side there is a lot of ability, but not without a lot of challenges to differentiate on underwriting. And I think you can look at the landscape and clearly pick out people who are more disciplined on underwriting, more disciplined in terms of capital, more disciplined in terms of their reinsurance strategy, how they think about it, concentrate management and so forth. And that's becoming more important particularly as we've had a period where capital has been scarce. I think we're entering something where markets are getting softer, and capital may be more available. But how and where I am comfortable taking catastrophe risk in a portfolio is a very significant question going forward.

    So, the ability to differentiate on underwriting is kind of high. The ability to differentiate on how I manage my broker relationships is also significant. The ability to differentiate based on my claims experience is high. And particularly on the commercial side — these are global businesses serving large corporates — they want to serve somebody who can serve them in multiple points. So, my ability to make decisions about my global footprint is bigger. So, I think within P&C there are a richer set of levers that I can pull.

    But as you know, we're coming out of an historic hard market cycle. And then the question really for a lot of P&C companies is, how am I going to maintain growth, as rate is no longer my friend from a revenue-growth perspective. So, all that to say, I think P&C businesses, to some extent, are in a different position.

    Paul: You referenced our latest publication, The Future Is Now for Insurers: 10 to do’s for CEOs in 2024. If you were an insurance CEO today, in February 2024, what would you do?

    Mick: I'd start with a couple of things that I think are general, no matter what kind of insurer you are. As you know, we saw massive hype last year around generative artificial intelligence (Gen AI). And there's also an interesting piece of research that we've done looking at industry exposure and potential for disruptive innovation driven by Gen AI with a framework that looks at the structure of the industry and the structure of the roles in it. And also, at the amount of value that can be created through those roles. It’s very clear from that analysis that insurance is a place that has very high positive disruptive potential in terms of somebody's ability to do something. Also, I would say, and it's maybe just a function of where we are in the cycle with it, that most of what we saw our clients do with Gen AI last year was almost a grassroots effort to try and educate a workforce around it to release it into the organization, to begin to conduct pilots, and to begin to learn. All of that I think is obviously to the good. But what we haven't seen yet is somebody top-down manage to where the biggest disruptive areas are and really go after those. And that's something I think needs more attention.

    The other general point, and this is somewhat tactical, but I think important, is that almost every insurer that I talk to is not comfortable, happy, satisfied, delighted with their ability to get insights fast from some combination of their Finance and Actuarial teams. Why is that becoming more important? I think it's becoming more important because in a lot of cases the external environment is accelerating. In a lot of cases, rules have changed in terms of how I think about capital and I'm not able to think and pivot fast enough.

    Paul: The literal rules.

    Mick: Literal rules. Exactly. As in: You need to think about capital this way, you need to hold it in these places, and you need to manage to this ratio. In other cases, and this is particularly true on the Life side, the speed and agility of the competitors I'm going up against is very different to what has been there historically. And I need a machine that is capable of allowing me to make decisions much faster and decide where I want to move things. So, I would say that's another area that is really around capability.

    For P&C insurers, it’s not quite the highest-order question, but the question around coming off a historic hard cycle in just about all lines. And it's clear that that's beginning to moderate in a number of places. The pace of moderation and the ultimate endpoint, I think, will change. But that brings up lots and lots of issues around how should I be positioning now to ensure that relative to others, I sustain momentum, stay in the lines that I want, and maintain the relationships that I want while also maintaining profitability.

    And then look, the one perennial that picks up every time is around what we would describe as performance transformation — but performance transformation with a cost element. I would say 6 out of 10 of any set of management teams that you pick will talk now about the cost programs that they are doing, their efficiency, and how they're thinking about it. And the tone of a lot of those conversations. I would say, look, we’ve been running cost programs. It's not new that we're running a cost program, but now we need to think about how we do things slightly differently as we move forward. And one of the ideas in our publication we share around this is managing shared services across an organization, like a business rather than just a cost that gets handed to the organization every year.

    Paul: It leaves the opportunity for someone adjacent to the insurance industry to come in and offer something that's very differentiated. And again, for some of these P&C players, there's more of an impetus to act relatively quickly. Look, it's one thing to say we need to spend a lot more on innovation. What do you think at the heart of it, whether I'm a Life insurer or a P&C carrier, what do you need to do fundamentally differently, especially as a CEO or C-suite executive? What do I need to instigate or kickstart to make it happen?

    Mick: I think it comes in multiple parts, and this is not necessarily an order. But as you know, and I’ll sound a little cynical for a minute here.

    Most large organizations can stifle innovation very quickly because the organization is tooled to doing things in a certain way. And particularly if you're a 100- to 150-year-old company, guess what? There's a lot of rigidity to how the machine operates. And you have fragmented data, you have fragmented policy admin systems, and you have very large sprawling empires in terms of how decisions get made. So, it demands a vision around the space and the passion of a CEO to say, we're going to go after this space. I have an idea of how to do it, and this is what we're going to do.

    The things that sit behind that are around, what's the mechanism by which I'm going to do it? Now, when I say mechanism, the reality is if I'm breaking ground, I need to be prepared to fail. And it indexes a little bit more toward a venture capital mindset than it does a more mature business management mindset. Which is that I can make a number of different moves. I can say there's an adjacent space where I am going to get into it inorganically, and I can make an acquisition this way and integrate it. Now, I would say the interesting thing to me is that if you look at the group benefits space in particular, then that's adjacent to various things in the health space. And certainly, some of the very big players are looking over into that space and saying, hey, what do I want to have there? So, I don't know if it's possible to go the other direction. Right now, there are insurers that have health businesses, but is there an adjacent space there that I can get into through acquisition? But there is an inorganic element to it, which is how much risk am I willing to take in order to buy that business over there, integrate it, and create a synergy?

    At the other end of the spectrum is, I'm going to begin to do things organically and I need to experiment. I need to learn, and I need to be prepared to invest. I need to understand how I'm going to stage investment. I need to have a portfolio of things that I'm learning, and they can't be hobbies that folks have off the side of their desk. And I'm going to manage that portfolio myself. There's a framework for doing that which says, here's how to run an incubation business unit or an innovation business unit with that same kind of venture discipline in it. I would like to see organizations do more of that.

    And then as you know, there's an element to it in terms of culture that says it's okay to fail. I'm not asking you guys to do this stuff, this is where we're going to do it, and we're going to move people around. The most successful companies, I think, are those where at least some of those conditions have held. You always get somebody looking back and going, yeah, that was super obvious what they did there. But the point was it wasn't obvious at the time, and it involved a certain amount of risk-taking and moving on. It requires a vision and level of conviction from the top down.

    Paul: Ultimately, it needs to start from the top also because the conviction needs to be made in the boardrooms and with the shareholders. There needs to be new metrics or different metrics and a clear throughline between how I am going to measure success from innovation. And it's very different from a more mature business down the line.

    Mick: In a way, I've got to build a learning engine and run that to scale.

    Paul: I really like that learning-engine terminology.

    Mick: Particularly when it comes to shareholders and boards in the outside world, you've got to earn permission to do more and more. And I think that building that permission is a tough thing to do in various parts of the landscape. Particularly in Life insurance, I think it's critical.

    Paul: Setting the vision is great, but then what's your beachhead? What's your starting point? And how do you build momentum progressively? Essentially, that's what you described also. What are the first proof points? Am I going to demonstrate to earn the right to do more from the board?

    Mick: How do I get myself under the flywheel?

    Paul: So fascinating. I'd like to shift gears. As you look across the Americas, Europe, Asia, what are some the flavors and differences that you've been picking up? You’ve been spending time in Europe. I know you were at the International Insurance Society (IIS) Global Insurance Forum in Singapore a few months back and are engaging with folks across the different markets. What strikes you as the big differences among these regions?

    Mick: The biggest Life markets globally are super mature. And if you look at it, the story that we started to describe has started in the US, and is moving to the UK, and it is looking at Japan. And even with the issues with a couple of examples of the privately backed insurers in Europe, I think that will begin to happen quickly there, too.

    Paul: And it's interesting because obviously there are different flavors, different challenges, and opportunities. But having spent some time in Asia recently, I think if you look at many of these markets, the two main distribution avenues for Life insurance are: agents and bank insurance. And in both cases, there's huge risks around these things. Bank insurance is dependent on partners. And on the agent side, what I found fascinating is yes, it has been the way to go, and it has been a very profitable opportunity for everyone. And then Covid-19 hit and suddenly many more opportunities arose. And for whomever was considering getting into the agent workforce, there were many more interesting avenues available. And now as a Life insurer using this as one of my primary channels, I'm at risk of essentially not being able to use that channel anymore. So how do I reinvent it? How do I make it more attractive? How do I potentially consider alternate opportunities? I feel like we're seeing different but similar problems as well in these different markets.

    Mick: Switching away from Life for a moment, I think the other interesting thing, particularly as it relates to Asia, is that we’ve been talking a lot about global accident and health businesses.

    The embedding of insurance and customer journeys for relatively low-transaction events, but at a very high volume. You see it in lots and lots of places. In particular, it seemed a lot more of the conversation in Asia was around those kinds of business models and the way that works. And that's interesting. I would say, I don't see huge differences within commercial P&C businesses in terms of the regions. The factors tend to be somewhat similar. And then the multi-lines tend to be a little bit more of a European phenomenon, somewhat driven by the evolution of needing to have a broad product shelf for a set of agents in various home countries and so forth.

    Paul: To your point on embedded insurance, what I find interesting is that there is a very transactional way to think about this. But there is also an element around, how can I have a broader offering that either I'm orchestrating, and I have my set of products and a set of partner products that I'm delivering, or I'm part of a broader ecosystem.

    We’re Oliver Wyman, we're part of MMC. We're very much embedded in the insurance industry. We talked a little bit about Oliver Wyman's value proposition at the top, but the ambition, the vision, the kind of hard problems we're looking to help our clients with — can you unpack this for us? This is very much something I'd love to get your take on.

    Mick: What we want is to be uniquely valuable to our clients. Our clients being insurers and asset managers and those moving around in that ecosystem. And we generally think about, how do we create that value in four transformation moments? I'll give you the transformation moments at a high level and then double click on each.

    There’s customer-led transformation, which is that I want to figure out a way, or I'm transforming myself around unique value creation for the customer, which is consistent with what we're talking about. The second is performance transformation, which is, I want to improve the bottom-line of my business in some way. The third is deal-driven transformation, which is I either want to buy something or I want to sell something. It's going to be transformative in terms of the value of my business. And the fourth is stakeholder-led transformation. That can be an external stakeholder, an activist investor. But more often it is that I have a new management team, or I have a new executive in this role. I have something driven by a change in some stakeholder inside the organization.

    We’re orienting ourselves around serving the industry in those four transformation moments. In one way, there's very little that's happening that's meaningful that you can't assign to one of those. The customer-led transformation is just what we're talking about. How do I reorient the industry to create more value for individual customers? It can be, how do I crack financial wellness? How do I really go after the SME space for property and casualty?

    The performance transformation is just what we were talking about, which is how do I use Gen AI to really transform what I'm doing inside the organization? How do I move from a cost view to a profit-center view? How do I really change the nature of what it is that I do and how I go after it? With the deal-driven one, we have any number of examples of IPOs or restructuring or various things.

    And the stakeholder one is as management teams turn over, and that tends to go in cycles, but if you take a CEO with a tenure of 5 to 10 years then every time that turns over, you step into that space. That happens very regularly. So those are the transformation moments.

    The other part is your question of what's exciting about Oliver Wyman in that space? And how do we think we're uniquely placed to help? And I'd say a few things, and echo some of what I said at the beginning. One is we're a management consulting firm with a world-class actuarial capability specialized in insurance and asset management, sitting inside what is one of the world's largest global powerhouses of anything that moves in insurance. So, I kind of joke that if you think of the amount of knowledge that we have in 1166 here in New York, show me another building in the world that has that footprint into what's happening inside the insurance industry.

    I think we bring a unique set of insights and capabilities. And we also want to do it in a way where we're partnering with our clients. We're working shoulder-to-shoulder with them. We have competitors with various styles. I would say what's unique to us is we're content and specialist focused, but with the ability to deliver with a transformative view and lens on it benefiting from a lot of the knowledge that sits in the organization.

    And what excites me about it is how we are talking internally about doing that. We have this phrase that makes people smile, we are already a long way toward being a juggernaut consulting business in that space. We have a very large team with a lot of expertise, but we have our eye on something that would 2x or 3x that over the course of the next five years. And we think we have a permission to win and an ability to deliver value that we're very excited about.

    Paul: Terrific. And obviously helping drive a lot of the change that we've been talking about in the last few minutes. Well, that was super-insightful. I really enjoyed our time together. Before we wrap, care to share a few words of wisdom for our audience based on everything we talked about?

    Mick: The industry we serve is massive, complicated, and global. If I had a magic wand and was looking at it, I think there's a lot of transformation I'd like us to support in the Life space to take the industry to a better spot. I think the P&C side of things is starting in a very different position, but I'm very excited about the transformation of Gen AI and the opportunity for that. And also, the next pivot of the industry through the soft-pricing cycle. And then on the broader asset management and private capital side, it's a complicated jigsaw. But I just think this adding a balance sheet to those models and using that to fund what is a very sensible position is very exciting. So, I would say thanks to our clients and those that are trusting us to do this. We're excited to partner with the industry.

    Paul: Terrific. Well, Mick. thank you for your time. I really enjoyed the conversation.

    Mick: Pleasure. Thank you for having me.

    Paul: That was Mick Moloney, Global Head of Insurance, Asset Management, and Actuarial at Oliver Wyman. I'm Paul Ricard. Thanks for listening. For more information about our Reinventing Insurance series, you can find everything on our website at OliverWyman.com/reinventinginsurance. Thanks for listening and I'll see you next time.

    This transcript has been edited for clarity.

    In this episode of Reinventing Insurance, Mick Moloney, global head of insurance, asset management, and actuarial at Oliver Wyman joins our host Paul Ricard to discuss current industry trends, and opportunities for insurance CEOs to adopt an offensive stance and win in 2024.

    As leaders face this new year, they need to be sharper than ever on where they truly differentiate. We believe the future is now. The trends of the last decade are continuing to accelerate, with a convergence on fully customer-centric experiences, fully digital operating models and incorporating generative artificial intelligence (AI) as a co-pilot within your workforce.

    In this podcast, Mick and Paul discuss:

    • The state of the insurance industry, including generative AI, growth opportunities, meeting customer demand and delivering shareholder value.
    • Innovation and what life and property and casualty (P&C) insurers need to do differently.
    • Three growth paths for life insurers today.
    • Trends, revenue opportunities, and the current forces impacting the P&C insurance industry.
    • The asset management-led insurer model, and how it’s disrupting the industry.
    • The actions insurance CEOs should take to drive growth, sustain momentum, maintain relationships, and drive profitability.
    • Key themes and insurance opportunities from our publication The Future Is Now.
    • For more industry insights, subscribe to Mick's Reinventing Insurance newsletter

    This episode is part of our Reinventing Insurance series, a series that explores best practices for taking a CustomerFirst approach to innovation within Insurance. Throughout this series, host Paul Ricard discusses lessons, challenges, and new ways of working with guests who will share their first-hand experiences.

    Subscribe for more on: Apple Podcasts | Spotify | Google | Amazon Music

    Paul Ricard: Hi everyone, and welcome to Oliver Wyman's Reinventing Insurance podcast. I'm your host, Paul Ricard. Today I'm delighted to welcome Mick Moloney, who is a Partner and Global Head of Insurance, Asset Management, and Actuarial at Oliver Wyman. Welcome Mick.

    Mick Moloney: Thanks, Paul. Delighted to be here.

    Paul: So, why don't we start? Actually, before we start, I want to say it's pretty cool to have sort of a crossover episode here. Because this is the Reinventing Insurance podcast, and you're also running the Reinventing Insurance newsletter for Oliver Wyman, where you're sharing a lot of perspectives about the industry. So, I feel there's a meeting of the worlds here, which is going to be pretty cool.

    Mick: Cross-pollination.

    Paul: Exactly. Why don't we start with you telling us a little bit about your role and what's in your purview at Oliver Wyman?

    Mick: Sure. As you know, I lead our Insurance, Asset Management, and Actuarial Practices. That’s probably 700 or 750 of our folks with a concentration in the US and Europe, with a solid and growing footprint in Asia-Pacific, where we're in Hong Kong, Singapore, and Japan, and growing pretty rapidly there. And we serve Life and P&C insurers within our actuarial practice, healthcare insurers, and asset managers, and with a very significant overlap between asset managers and insurers. And we consult with them on a full range of topics from more strategy and management consulting issues, in terms of how do I grow my top line? Am I operating efficiently? Am I innovating enough? Am I innovating at scale? Should I buy or sell things in terms of helping me accelerate on how I will meet my strategy?

    And then on the actuarial side, obviously we do a lot of work around pricing, reserving, and increasingly around is my actuarial function operating as efficiently as I'd like and giving me the kind of insights that I want. If it moves in insurance, we tend to deal with it. And we're obviously sitting in, by market cap, the world's third-largest public insurance entity in terms of Marsh McLennan. And we obviously collaborate closely with Marsh, Guy Carpenter, and Mercer, particularly when they can be helpful to our clients. They are obviously very big intermediaries sitting on a lot of data, sitting on a lot of expertise. We like to think that we're unique in having management consulting, strategy, and actuarial sitting within that kind of data lake and with the ability to bring those insights to clients. So that's us.

    Paul: Terrific. We're going to have a lot to cover that spans your remit over the next few minutes. And in this episode, we’ll talk about the state of the industry and some of the big opportunities for insurers. But before we go there — you mentioned Marsh McLennan. I think if we take a bit of a detour going back to your prior roles, I know among others that Marsh McLennan has been a big part of your career. And I know actuarial sciences is also a big part of your career. Why don't you tell us a little bit about your background before we go forward together?

    Mick: There isn't much of it that's disconnected from Marsh McLennan. It seems like a very long time ago now, but I originally joined Mercer in Dublin, Ireland in 1990. Initially, as a retirement plan actuary and then as an investment actuary. I stayed with Mercer until I qualified as an actuary in late 1995. Then I went to work for six years for a startup consulting firm, running it in the UK for a period of time. I moved back to Mercer in 2002, and set up and ran a European group that Mercer had and then a global group that Mercer had doing asset-liability management risk, risk management, and pension risk transfer for large clients. Moved to New York, which is a longer story that I'm sure we won't get into here, in 2009 with Mercer, and moved over to Oliver Wyman at the beginning of 2012. So, I've just had my 12th anniversary with Oliver Wyman.

    Paul: Right. Happy anniversary.

    Mick: Somewhere, I need to clip Marsh and Guy Carpenter before my career is complete. Marsh McLennan's a great company, it's been great to me. It's been a terrific environment for what I'm interested in doing.

    Paul: Terrific. And obviously in and around the insurance industry for all that time.

    Mick: Yes, in various shapes and forms. And in balance-sheet businesses, I would say, for the entire time.

    Paul: So, let's get right into it. I would like to start by doing a snapshot of the state of the insurance industry. And getting a sense of where things are in terms of meeting customer demand, delivering shareholder value, the winners, the losers. And it’s a bit of a leading question because I know you have an interesting way of looking at value in the industry. Why don't we start there?

    Mick: You and I have had lots of conversations about this, so I'm sure you'll jump in with your views as well. I think in the way you're asking the question there is hinting at the fact that, and it may be slightly hard to describe for anyone listening, but we have various publications including my Reinventing Insurance newsletter, which has the chart that I'm about to describe.

    Paul: For the record, Mick asked me multiple times if it was possible to attach a slide to the podcast and the answer was no.

    Mick: We decided to save those listening on their commutes the hassle. So, the chart, if folks can picture it, is one that on the vertical axis has five-year total shareholder return as a measure of value creation. And on the horizontal axis, it has a forward price-earnings measure. And you can think about that as really being investors' views of the growth prospects of the individual company and the industry.

    And if you can picture that scatterplot for public insurers, and I'll keep it simple for the moment and just talk about US public insurers and then we can kind of expand it globally from there, but what you observe — and there are obviously differences in terms of individual companies — but what you observe at the most macro level is that the public Life insurers are generally in the bottom left-hand quadrant of that graph.

    So, what's that telling you? It's telling you that for what are very often capital-intensive and high-beta businesses, they have returned less than the market over the last five years. And they're trading on low, mid, and in some cases, low teens. But the majority on average are trading in the mid-single digits, by which I mean five, six times the forward price-earnings measure. So, it's saying that investors are looking at them and see they're operating in what are largely very mature markets. Investors are suspicious. They are doubtful about the ability to generate growth going forward or are concerned about that growth meeting the cost of capital of the business itself. So, obviously if I'm generating growth but it's not meeting my cost of capital, more growth is bad rather than good.

    Paul: Maybe we’ll pause on this, and we can go to the other parts of the charts later. So, what I'm inferring from this is that the Life insurance industry is in a unsustainable spot on that chart. Is that fair?

    Mick: I think it's probably difficult to conclude just from that chart that the industry is in an unsustainable spot. And I would call out that there are several companies in there that are in a more sustainable spot and have crown-jewel capabilities and businesses that investors value. But I think at the core, what it's saying is that for core annuity and Life markets in the US, and I would say the picture is similar for other developed geographies globally, that investors like the diet that they've been put on of having companies return a lot of capital, and not reinvest a lot of that capital in the business. And they're looking at the ability to differentiate by way of product innovation and distribution and are suspicious that there is a crown jewel there in a lot of cases. Now a lot of those companies no longer have proprietary distribution. A lot have products that while there is some innovation, they are generally not that hard to replicate.

    And a very big component of that is that the economics are driven very significantly by your ability to generate excess spread within a kind of general account. And that is a model that is being very heavily disrupted by what we describe as asset management-led insurers. So, it is an asset manager, very often a private equity or debt manager, that has what they consider to be a significant capability around sourcing, originating, and structuring private debt that can be put behind these liabilities. That's causing a lot of disruption, particularly for incumbents that don't have an equivalent capability.

    Back to your question. Yes, there is a lot of consolidation already happening because consolidation happens either by way of a company buying another, or in the Life sector happens by way of reinsurance transactions occurring. There are also just a number of Life insurers where the question you ask when you see them is, is that business at scale? Does the landscape need that number of balance sheets doing things that are not necessarily that differentiated? And I think we're already seeing those tectonic plates move around and kind of accelerate pretty fast in the US.

    Paul: And once you uncover what's happening — consolidation, reinsurance transactions, the advent of that asset management-led model that has really disrupted a lot of things lately — what is left is if I'm not going down that route, the expectation would be, do I have proprietary capabilities around distribution, around product innovation? And to your point, distribution has been outsourced and all these things. So, these companies can at times be left in a difficult position as a result.

    Mick: Yeah, they can. And if I take us off in a slightly brighter direction.

    Paul: Please.

    Mick: Look, the irony of it in a lot of ways is that when you think about what a Life insurer is at the core, it's an institution capable of manufacturing and delivering in a retail setting a guarantee to somebody wrapped around something that they care about. At the highest level, that is about financial security for an individual. They want financial security and an ability to get certainty around things that they are worried about. If you abstract that up to the highest level, what that tends to get referred to is financial wellness. And on any number of measures, financial wellness is a massive opportunity in the US.

    So, there is a huge opportunity that has not been cracked by anybody to go after what is either white or gray space in the US that you would think more insurers would be investing more heavily around. In reality, I think the vast majority of them appreciate that there's an opportunity there, but cracking that opportunity requires a significant risk appetite in terms of trying things with the foreknowledge that 8 out of 10 things that you try are going to fail. But within the two, there may be a path to a much brighter future that would see you growing.

    On the one hand, I think it's a huge opportunity. On the other hand, I kind of look and go, who is really going after that? And why aren't they going after it? And I would say nobody is really going after to the extent that I think they really need to. And one of the handicaps in terms of them going after it is that most public Life insurers, as I mentioned, have gotten themselves into a position where returning capital to shareholders has become, if not the primary goal, then one of the top goals. And once you're in that position, it's very hard to convince shareholders that you're going to retain more money in order to invest to go after something that looks as uncertain as this. And I really think whoever can crack that conundrum may lead us to a better place for the industry. That's what I really hope happens.

    Paul: Here, you need to shift from value to growth. You need to shift the way your organization is set up. And I think another thing that's important to your point on financial wellness, what I found oftentimes is it can be mostly a coat of marketing paint on top of, ‘I'm just going to push my existing products.’

    Mick: Yes, I agree.

    Paul: Versus solving a broader ecosystem of needs from customers that I may not solve by myself, where I may need to partner with others. So, I feel like it's not like any of these problems is unsolvable, but it feels like the life insurance industry has a lot of these problems to solve at once.

    Mick: There isn't only one way forward. I think if you look at the routes, it's probably wrong to describe them as bookends because they're not necessarily mutually exclusive. But route one is, I am going to be an asset management-led insurer. The primary thing I'm concerned about in that model is my asset management capability. And what I'm really concerned about is at the end of the day, because things will go through a process of shaking out, do I have an asset management capability with asset origination and structuring that's at scale and capable of competing with the bigger private equity firms? The archetype of the model is Apollo Athene, and in Europe it’s Athora. KKR has Global Atlantic, Carlyle has Fortitude, Ares has kind of its own, and Blackstone has lots of footprint in that space as well. So, these are very large, successful private equity and debt firms that are viewing an insurance balance sheet as one leg of funding for the core operation.

    Now, if I'm starting as an incumbent, I can choose to go in that direction because to your point about rerating, on that graph that we described, the private equity firms are in the top right-hand quad. So, they are well perceived, have delivered strong returns, and are rated for growth going forward. If I'm in the bottom left, I can look at that and go, I want to replicate that model. But the question I need to ask myself then is, do I have the resources and capabilities and am I organized properly in terms of flipping my model on its head?

    As you know, in our Future Is Now for Insurers: 10 to do’s for CEOs article, that one was strong last year, and very strong this year in terms of what we did. But the two other opportunities in there that are different ways out are one that says you need to 10x your innovation. That’s the route of I'm going to do something different and really grasp the nettle of this challenge. I’m going to do something uniquely different for a big enough group of consumers that this thing will lead me to a different place, with all the incumbent challenges that we've talked about.

    The idea called ‘know what your secret sauce is.’ What I see playing out is that there are insurers in the landscape today that aren't headed for being the asset management-led insurer, don't have proprietary distribution and proprietary relationships with consumers, and are in the mindset that somehow product innovation and distribution is a sustainable value-adding position for consumers.

    And that, as you know, is one that requires the most careful exploration and pressure testing because it's not obvious to me that is articulated well enough and executed well enough to really be something different. So those three opportunities are: (1) become an asset management-led insurer, (2) 10x your innovation, and (3) understand what your secret sauce is at a very deep level.

    I appreciate I can sound a bit down on the Life insurance industry at times. I'm actually not. I think there's just a future position that looks very different to where we are today, part of which is very rapidly emerging. Another part of which I would like to see emerge much more with that innovation point. Because I just think it's not about dividing today's pie in a better way. It's about creating a new pie. And I think that would benefit everybody.

    Paul: It seems like with these three paths, the impetus for marching down one of these paths quickly has increased also because this asset management-led model has really increased in prominence.

    Mick: The other ones on the page then are the asset managers. For asset managers, there is a lot of pressure in that system in terms of scale, in terms of the push into alternatives, and in terms of various factors and features. But again, there's a set of dispersion in there and an overlap with the business. And then the other one is that the brokers are also in the top right-hand corner of the chart. So, if you take MMC, Gallagher, AON, Brown & Brown, WTW, they are rated for continued growth and have provided returns significantly in excess of the broader stock market over the last five years in most cases. And really, the insight there I think that folks tend to take from that chart is that the economics in the landscape overall have indexed more toward distribution than to balance sheet and manufacturing. That distribution is really where a lot of the economics have come out now. And you get all sorts of questions then: Is there something carriers should be doing in terms of moving more towards that? How does it work? And so forth. But that's the current state of play.

    Paul: The market appreciation is toward the distribution. I think we've been talking about it for years, which is if you look at the entire insurance ecosystem, where do insurers ultimately land? I think what we're describing is, and I'm going to take a P&C-centric view of the world. Everything that’s balance-sheet related, am I going to be taken over by reinsurers and other sources of capital? Everything that's customer facing, whether it's a corporate customer or a retail customer, is this what the broker is doing and continuing building on? And then what is left for me as a competitive advantage? There's a little bit of a question mark around a lot of these P&C players to determine what's going to be my way forward? And how am I going to differentiate myself? And how am I going to generate more value and secure either a spot in the top right or make sure I don't go down the bottom left?

    Mick: I agree. And see if you agree with what I'm about to say. The interesting thing for me about the P&C landscape though is that it is a much richer landscape of levers that I can pull as a management team in terms of how I want to go about creating that value. If you look at it on the property and casualty side there is a lot of ability, but not without a lot of challenges to differentiate on underwriting. And I think you can look at the landscape and clearly pick out people who are more disciplined on underwriting, more disciplined in terms of capital, more disciplined in terms of their reinsurance strategy, how they think about it, concentrate management and so forth. And that's becoming more important particularly as we've had a period where capital has been scarce. I think we're entering something where markets are getting softer, and capital may be more available. But how and where I am comfortable taking catastrophe risk in a portfolio is a very significant question going forward.

    So, the ability to differentiate on underwriting is kind of high. The ability to differentiate on how I manage my broker relationships is also significant. The ability to differentiate based on my claims experience is high. And particularly on the commercial side — these are global businesses serving large corporates — they want to serve somebody who can serve them in multiple points. So, my ability to make decisions about my global footprint is bigger. So, I think within P&C there are a richer set of levers that I can pull.

    But as you know, we're coming out of an historic hard market cycle. And then the question really for a lot of P&C companies is, how am I going to maintain growth, as rate is no longer my friend from a revenue-growth perspective. So, all that to say, I think P&C businesses, to some extent, are in a different position.

    Paul: You referenced our latest publication, The Future Is Now for Insurers: 10 to do’s for CEOs in 2024. If you were an insurance CEO today, in February 2024, what would you do?

    Mick: I'd start with a couple of things that I think are general, no matter what kind of insurer you are. As you know, we saw massive hype last year around generative artificial intelligence (Gen AI). And there's also an interesting piece of research that we've done looking at industry exposure and potential for disruptive innovation driven by Gen AI with a framework that looks at the structure of the industry and the structure of the roles in it. And also, at the amount of value that can be created through those roles. It’s very clear from that analysis that insurance is a place that has very high positive disruptive potential in terms of somebody's ability to do something. Also, I would say, and it's maybe just a function of where we are in the cycle with it, that most of what we saw our clients do with Gen AI last year was almost a grassroots effort to try and educate a workforce around it to release it into the organization, to begin to conduct pilots, and to begin to learn. All of that I think is obviously to the good. But what we haven't seen yet is somebody top-down manage to where the biggest disruptive areas are and really go after those. And that's something I think needs more attention.

    The other general point, and this is somewhat tactical, but I think important, is that almost every insurer that I talk to is not comfortable, happy, satisfied, delighted with their ability to get insights fast from some combination of their Finance and Actuarial teams. Why is that becoming more important? I think it's becoming more important because in a lot of cases the external environment is accelerating. In a lot of cases, rules have changed in terms of how I think about capital and I'm not able to think and pivot fast enough.

    Paul: The literal rules.

    Mick: Literal rules. Exactly. As in: You need to think about capital this way, you need to hold it in these places, and you need to manage to this ratio. In other cases, and this is particularly true on the Life side, the speed and agility of the competitors I'm going up against is very different to what has been there historically. And I need a machine that is capable of allowing me to make decisions much faster and decide where I want to move things. So, I would say that's another area that is really around capability.

    For P&C insurers, it’s not quite the highest-order question, but the question around coming off a historic hard cycle in just about all lines. And it's clear that that's beginning to moderate in a number of places. The pace of moderation and the ultimate endpoint, I think, will change. But that brings up lots and lots of issues around how should I be positioning now to ensure that relative to others, I sustain momentum, stay in the lines that I want, and maintain the relationships that I want while also maintaining profitability.

    And then look, the one perennial that picks up every time is around what we would describe as performance transformation — but performance transformation with a cost element. I would say 6 out of 10 of any set of management teams that you pick will talk now about the cost programs that they are doing, their efficiency, and how they're thinking about it. And the tone of a lot of those conversations. I would say, look, we’ve been running cost programs. It's not new that we're running a cost program, but now we need to think about how we do things slightly differently as we move forward. And one of the ideas in our publication we share around this is managing shared services across an organization, like a business rather than just a cost that gets handed to the organization every year.

    Paul: It leaves the opportunity for someone adjacent to the insurance industry to come in and offer something that's very differentiated. And again, for some of these P&C players, there's more of an impetus to act relatively quickly. Look, it's one thing to say we need to spend a lot more on innovation. What do you think at the heart of it, whether I'm a Life insurer or a P&C carrier, what do you need to do fundamentally differently, especially as a CEO or C-suite executive? What do I need to instigate or kickstart to make it happen?

    Mick: I think it comes in multiple parts, and this is not necessarily an order. But as you know, and I’ll sound a little cynical for a minute here.

    Most large organizations can stifle innovation very quickly because the organization is tooled to doing things in a certain way. And particularly if you're a 100- to 150-year-old company, guess what? There's a lot of rigidity to how the machine operates. And you have fragmented data, you have fragmented policy admin systems, and you have very large sprawling empires in terms of how decisions get made. So, it demands a vision around the space and the passion of a CEO to say, we're going to go after this space. I have an idea of how to do it, and this is what we're going to do.

    The things that sit behind that are around, what's the mechanism by which I'm going to do it? Now, when I say mechanism, the reality is if I'm breaking ground, I need to be prepared to fail. And it indexes a little bit more toward a venture capital mindset than it does a more mature business management mindset. Which is that I can make a number of different moves. I can say there's an adjacent space where I am going to get into it inorganically, and I can make an acquisition this way and integrate it. Now, I would say the interesting thing to me is that if you look at the group benefits space in particular, then that's adjacent to various things in the health space. And certainly, some of the very big players are looking over into that space and saying, hey, what do I want to have there? So, I don't know if it's possible to go the other direction. Right now, there are insurers that have health businesses, but is there an adjacent space there that I can get into through acquisition? But there is an inorganic element to it, which is how much risk am I willing to take in order to buy that business over there, integrate it, and create a synergy?

    At the other end of the spectrum is, I'm going to begin to do things organically and I need to experiment. I need to learn, and I need to be prepared to invest. I need to understand how I'm going to stage investment. I need to have a portfolio of things that I'm learning, and they can't be hobbies that folks have off the side of their desk. And I'm going to manage that portfolio myself. There's a framework for doing that which says, here's how to run an incubation business unit or an innovation business unit with that same kind of venture discipline in it. I would like to see organizations do more of that.

    And then as you know, there's an element to it in terms of culture that says it's okay to fail. I'm not asking you guys to do this stuff, this is where we're going to do it, and we're going to move people around. The most successful companies, I think, are those where at least some of those conditions have held. You always get somebody looking back and going, yeah, that was super obvious what they did there. But the point was it wasn't obvious at the time, and it involved a certain amount of risk-taking and moving on. It requires a vision and level of conviction from the top down.

    Paul: Ultimately, it needs to start from the top also because the conviction needs to be made in the boardrooms and with the shareholders. There needs to be new metrics or different metrics and a clear throughline between how I am going to measure success from innovation. And it's very different from a more mature business down the line.

    Mick: In a way, I've got to build a learning engine and run that to scale.

    Paul: I really like that learning-engine terminology.

    Mick: Particularly when it comes to shareholders and boards in the outside world, you've got to earn permission to do more and more. And I think that building that permission is a tough thing to do in various parts of the landscape. Particularly in Life insurance, I think it's critical.

    Paul: Setting the vision is great, but then what's your beachhead? What's your starting point? And how do you build momentum progressively? Essentially, that's what you described also. What are the first proof points? Am I going to demonstrate to earn the right to do more from the board?

    Mick: How do I get myself under the flywheel?

    Paul: So fascinating. I'd like to shift gears. As you look across the Americas, Europe, Asia, what are some the flavors and differences that you've been picking up? You’ve been spending time in Europe. I know you were at the International Insurance Society (IIS) Global Insurance Forum in Singapore a few months back and are engaging with folks across the different markets. What strikes you as the big differences among these regions?

    Mick: The biggest Life markets globally are super mature. And if you look at it, the story that we started to describe has started in the US, and is moving to the UK, and it is looking at Japan. And even with the issues with a couple of examples of the privately backed insurers in Europe, I think that will begin to happen quickly there, too.

    Paul: And it's interesting because obviously there are different flavors, different challenges, and opportunities. But having spent some time in Asia recently, I think if you look at many of these markets, the two main distribution avenues for Life insurance are: agents and bank insurance. And in both cases, there's huge risks around these things. Bank insurance is dependent on partners. And on the agent side, what I found fascinating is yes, it has been the way to go, and it has been a very profitable opportunity for everyone. And then Covid-19 hit and suddenly many more opportunities arose. And for whomever was considering getting into the agent workforce, there were many more interesting avenues available. And now as a Life insurer using this as one of my primary channels, I'm at risk of essentially not being able to use that channel anymore. So how do I reinvent it? How do I make it more attractive? How do I potentially consider alternate opportunities? I feel like we're seeing different but similar problems as well in these different markets.

    Mick: Switching away from Life for a moment, I think the other interesting thing, particularly as it relates to Asia, is that we’ve been talking a lot about global accident and health businesses.

    The embedding of insurance and customer journeys for relatively low-transaction events, but at a very high volume. You see it in lots and lots of places. In particular, it seemed a lot more of the conversation in Asia was around those kinds of business models and the way that works. And that's interesting. I would say, I don't see huge differences within commercial P&C businesses in terms of the regions. The factors tend to be somewhat similar. And then the multi-lines tend to be a little bit more of a European phenomenon, somewhat driven by the evolution of needing to have a broad product shelf for a set of agents in various home countries and so forth.

    Paul: To your point on embedded insurance, what I find interesting is that there is a very transactional way to think about this. But there is also an element around, how can I have a broader offering that either I'm orchestrating, and I have my set of products and a set of partner products that I'm delivering, or I'm part of a broader ecosystem.

    We’re Oliver Wyman, we're part of MMC. We're very much embedded in the insurance industry. We talked a little bit about Oliver Wyman's value proposition at the top, but the ambition, the vision, the kind of hard problems we're looking to help our clients with — can you unpack this for us? This is very much something I'd love to get your take on.

    Mick: What we want is to be uniquely valuable to our clients. Our clients being insurers and asset managers and those moving around in that ecosystem. And we generally think about, how do we create that value in four transformation moments? I'll give you the transformation moments at a high level and then double click on each.

    There’s customer-led transformation, which is that I want to figure out a way, or I'm transforming myself around unique value creation for the customer, which is consistent with what we're talking about. The second is performance transformation, which is, I want to improve the bottom-line of my business in some way. The third is deal-driven transformation, which is I either want to buy something or I want to sell something. It's going to be transformative in terms of the value of my business. And the fourth is stakeholder-led transformation. That can be an external stakeholder, an activist investor. But more often it is that I have a new management team, or I have a new executive in this role. I have something driven by a change in some stakeholder inside the organization.

    We’re orienting ourselves around serving the industry in those four transformation moments. In one way, there's very little that's happening that's meaningful that you can't assign to one of those. The customer-led transformation is just what we're talking about. How do I reorient the industry to create more value for individual customers? It can be, how do I crack financial wellness? How do I really go after the SME space for property and casualty?

    The performance transformation is just what we were talking about, which is how do I use Gen AI to really transform what I'm doing inside the organization? How do I move from a cost view to a profit-center view? How do I really change the nature of what it is that I do and how I go after it? With the deal-driven one, we have any number of examples of IPOs or restructuring or various things.

    And the stakeholder one is as management teams turn over, and that tends to go in cycles, but if you take a CEO with a tenure of 5 to 10 years then every time that turns over, you step into that space. That happens very regularly. So those are the transformation moments.

    The other part is your question of what's exciting about Oliver Wyman in that space? And how do we think we're uniquely placed to help? And I'd say a few things, and echo some of what I said at the beginning. One is we're a management consulting firm with a world-class actuarial capability specialized in insurance and asset management, sitting inside what is one of the world's largest global powerhouses of anything that moves in insurance. So, I kind of joke that if you think of the amount of knowledge that we have in 1166 here in New York, show me another building in the world that has that footprint into what's happening inside the insurance industry.

    I think we bring a unique set of insights and capabilities. And we also want to do it in a way where we're partnering with our clients. We're working shoulder-to-shoulder with them. We have competitors with various styles. I would say what's unique to us is we're content and specialist focused, but with the ability to deliver with a transformative view and lens on it benefiting from a lot of the knowledge that sits in the organization.

    And what excites me about it is how we are talking internally about doing that. We have this phrase that makes people smile, we are already a long way toward being a juggernaut consulting business in that space. We have a very large team with a lot of expertise, but we have our eye on something that would 2x or 3x that over the course of the next five years. And we think we have a permission to win and an ability to deliver value that we're very excited about.

    Paul: Terrific. And obviously helping drive a lot of the change that we've been talking about in the last few minutes. Well, that was super-insightful. I really enjoyed our time together. Before we wrap, care to share a few words of wisdom for our audience based on everything we talked about?

    Mick: The industry we serve is massive, complicated, and global. If I had a magic wand and was looking at it, I think there's a lot of transformation I'd like us to support in the Life space to take the industry to a better spot. I think the P&C side of things is starting in a very different position, but I'm very excited about the transformation of Gen AI and the opportunity for that. And also, the next pivot of the industry through the soft-pricing cycle. And then on the broader asset management and private capital side, it's a complicated jigsaw. But I just think this adding a balance sheet to those models and using that to fund what is a very sensible position is very exciting. So, I would say thanks to our clients and those that are trusting us to do this. We're excited to partner with the industry.

    Paul: Terrific. Well, Mick. thank you for your time. I really enjoyed the conversation.

    Mick: Pleasure. Thank you for having me.

    Paul: That was Mick Moloney, Global Head of Insurance, Asset Management, and Actuarial at Oliver Wyman. I'm Paul Ricard. Thanks for listening. For more information about our Reinventing Insurance series, you can find everything on our website at OliverWyman.com/reinventinginsurance. Thanks for listening and I'll see you next time.

    This transcript has been edited for clarity.

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