How a New Zealand insurer navigated a crisis and achieved long term value creation
This article is an annotated version of Donna Buckland's GMBA essay in 2017.
In a business world where the only constant is change, the ability to navigate and thrive in the face of adversity is crucial for long-term success.
The story of Vero Insurance NZ Limited, a major insurer in New Zealand (part of the Suncorp Group of companies and Vero hereto), provides a poignant example of how a purpose-led, customer-centric strategic transformation can foster resilience and create lasting value.
The story draws on the company's journey through the Christchurch earthquake recovery and explores the economic and social value of purpose-driven organisations.
Economic impact of the Christchurch earthquakes
In 2010 and 2011, New Zealand faced a series of devastating earthquakes in Christchurch. The losses amounted to approximately NZ $40 billion, about 20% of the country's GDP (Deloitte, 2015). The catastrophic event fundamentally shifted the global reinsurer's risk appetite towards New Zealand.
Vero, a major general insurer in the country, was significantly impacted. It had to pay out multiple times its yearly profit in insurance claims - this was approximately $4 billion by end of 2013.
Crisis response and resilience
Vero's response to the earthquakes exemplifies the importance of adaptability and resilience. These concepts are rooted in the company's purpose of serving and protecting its customers.
In the wake of the earthquakes, Vero recognised that resilience was not just about surviving the immediate crisis, but building a sustainable foundation for the future. This purpose-driven approach involved several critical initiatives.
Customer-centric approach and trust-building
A cornerstone of Vero's response was its customer-centric approach. Key performance objectives of an insurer are directly linked to customer satisfaction. In the eyes of the customer, an insurance company is only as good as how well they pay out claims.
Recognising the importance of rebuilding trust with customers significantly affected by the earthquakes, Vero implemented several measures to prioritise customer needs.
A heavier focus was put on the claims lodging department's efficiency and empathy to deal with impacted customers.
The claims lifecycle repositioned the insurer as a trusted partner, as follows:
- Receiving an application
- Assessing insurable losses by loss adjusters
- Processing through finance operations for reserving cash
- Notifying investment managers
- Working with legal professionals to ascertain the validity of insurable events and the levels of cover
- Issuing positive confirmation to customers in their moment of adversity.
Stakeholder engagement and public-private partnership
The relationship with government agencies also had to be strengthened. The earthquake recovery effort was orchestrated by the government as a nationally critical undertaking:
- Prioritising recovery
- Issuing debt to finance short-term needs
- Providing emergency assistance packages
- Providing for infrastructure finance in rebuilding efforts.
The role of insurer became influential - beyond the usual scope of a typical financial services provider. It worked with various government agencies to get households and businesses back on their feet and further contributing to a productive economy.
Reputation as competitive advantage
The positive reputation of a major insurer handling claims efficiently during the disaster had many ripple impacts, influencing market perception, customer retention, and acquisition.
In a crisis mode for the industry, insurance companies' operational capabilities were critiqued or applauded in a very public manner. This was a real example of operational capabilities differentiated order winners to order qualifiers.
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Strategic shift and operational transformation
During the aftermath of the earthquakes, Vero recognised the need for a strategic shift. The global reinsurer's risk appetite had significantly changed. Vero's CEO highlighted during the period that Australia and New Zealand accounted for 17% of global reinsurance losses, but only 2% of global insurance premiums.
This disparity led to higher reinsurance prices and increased costs for major claims, necessitating a redirection of business strategy.
Leadership and vision
The leadership at Vero played a crucial role in steering the company through the crisis. To quote from Vero's CEO at the time:
"As an industry leader, leadership means that the company must improve the efficiency of our own businesses, leading to a most important shift from scale to value."
Vero's purpose was 'protecting New Zealand's future' and its strategic priority became optimisation of operations being scalable, renewable, and reducing risks, thereby enhancing customer value. This vision and communication formed clear direction, and instilled confidence in the company's strategy.
To support the strategy, the company executed an organisation-wide change programme focused on labour and capital productivity. This was to:
- Better equip the operational capability accommodating variations in demand during shock events
- Expediate the innovation agenda, which had been de-prioritised in the past, against a market expansion driven agenda.
The scale of financial commitment was the same as the profit of the business in one year, recognising the importance of this initiative.
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Embedding purpose in operations lading to value creation
On a human capital front, the focus was on retaining talent, supporting employees with development opportunities and flexible working arrangements - all of which contributed to high employee engagement. The company also prioritised aligning clarity of purpose embedded into the value chain.
On the process front, the emphasis was on 'improving the performance of the whole value chain rather than just optimising individual processes.' Examples include:
- Consolidation and de-duplication of functions
- Value stream mapping to highlight the transparency of correlation between product segments and business functions.
These led to pricing of products and the portfolio in a more transparent manner.
The ethos of reviews was linked to the purpose-led service mindset, questioning the business outcome of products and customer segments being served.
Cost efficiency came as a by-product of this move, through realignment of processes linked to value creation.
Final thoughts
Vero's experience during and after the Christchurch earthquakes offers valuable insights for other organisations seeking to navigate crises and build long-term value.
It underscores the importance of a purpose-led corporate strategy that prioritises trust, resilience, and stakeholder engagement. Purpose-led, organisational transformation is not just a strategy for survival, but a pathway to building enduring value.
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