Austin Kimm, President for Renaissance Life, explains to us how they make money in life insurance companies and what the main challenges for his company during the economic crisis are.
1. Do you have any values and principles which are important in business life?
Obviously, company values are very important and it became especially important in the late 90-s. All the big companies in the late 90-s came up with value statements, mission statements about what their key principles were. My previous employer was Aviva. They spent millions and millions of dollars trying to impose from a group head office which was based in London a set of values. The words like integrity were there. Every major business on the planet with its set of values has the word integrity there. It is something to do with customers, something to do with employers. There will be a few catch phrases in every business. What are the key aspects of your business which prove what your business ethics is? In my business we sell promises, we promise people "if you give me some money, I will give you more pack, if something would happen, either good or bad". And there are occasions, when you have a boundary, like an example you gave me about the Rolf Group when the driver was drunk. Clearly, the insurance policy will not pay in that scenario. But there could have been something that wasn't so black or white. It may be that he didn't disclose in a health declaration that he had a heart condition. And his heart gave way while he was driving. Practically we can say that legally we are not paying. But is it the right thing to do? Sometimes insurance companies improve business ethics by the key things it is designed for. In oil industry the key thing is pumping out oil and how it treats the environment. what happens when something really does happen to the environment - as it almost inevitably does somewhere in the world. So I don't have the set of words the company implies.
2. What is the peculiarity of your company then?
What we have is an attitude towards our customers which is very-very important. If we think the customer is trying to cheat us, we'll be as tough as anybody. Unfortunately in every business there are occasions when customers try to cheat you. When you identify the situation when a person legally has no right but you know that's the right thing to do. I can give you an example. There was a footballer who had leukemia. But due to the policy he had such types of diseases were excluded for the first six months. He was diagnosed with leukemia in the fifth month. He could have stayed back from the doctors and waited for another two weeks. But this is a very critical time; you don't stay away from the doctors with such serious cases. He clearly didn't know he had any form of leukemia. And it was a very large sum of money - several hundred thousand dollars. The question is: legally we don't pay, but is it the right thing not to pay? We decided it was not the right thing not to pay. This person has a serious disease. If he wouldn't have told us for two weeks more, he would have been covered. When you have this type of scenario, it's about doing the right thing. Other companies will have different examples of what doing the right thing is. Your staff sees that. Your claims person will talk about that, probably your PR people will make some positive PR as a result of that. And that spreads the attitude. You can obviously have some less serious examples. You have an agent who has stolen some money from you. You don't need a set of rules. You either fire him or you don't fire him. If you don't fire him, what type of message are you sending? If you do fire him, you need to think of the consequences. I think our people know what the boundaries are without having them written down.
3. Can you describe the business model of your company?
When I arrived in Russia in 2005, life insurance had not yet had any success. There were only a couple of companies that had a very small business. The key reason for that was they were adopting a very traditional approach to how to sell life insurance. Traditionally what you do when you set up a new insurance company, you start with a small core group of people, you build them to a strong capability, and then you take a few people and you move them around. But Russia is too big for that. It is based upon a strange logic because Moscow is different from everywhere else in Russia. Just because something works or doesn't work in Moscow, it doesn't mean it will work in Ryazan or in Yekaterinburg. The two things are not the same. What many companies had done was they tried to build up this core capability in Moscow and it wasn't working as quickly as they hoped because Muscovites were just taking to this business model and they were not prepared to take the risk and go to other cities because they couldn't prove the model in Moscow. My belief was that there are certain things that will work in every country in the world. One of them is the sales agent, who effectively sells to his close network of people. It happens in every business whether it is cosmetics like Avon, it happens throughout the world. We said: "Forget this model. We will just be aggressive, we will go from city to city, we will find non-insurance experts who are good managers to set up an insurance business". It is a pretty simple business, you can teach the complexities of insurance in two weeks to these people, enough that they have to know anyway. What I needed were people who could manage other sales people.
4. What was the point?
Whilst everyone else was trying to prove the model, I knew deep down that the model was correct, so I decided not to improve it but to go out of it. It brought instant success. We went from nowhere to being one of the market leaders. The world has changed a little bit since we started that. We are not so aggressive today as we were two years ago. Life insurance is one of those commodities that some people think is a luxury, which is unfortunate - it is not a luxury. We will probably go back to this expenses strategy in a year's time. The second thing we did different to everybody was we added a new product, we added compulsory pensions, and 6% of your salary goes to private pensions. The same people that are selling life insurance can also sell this pension without any extra cost. It is very important that the person has two incomes: one from selling this product and the other one from selling that product. The person who has two incomes isn't likely to look for another job. He already has two incomes in one company why does he want a third? So we started out aggressive faster than anybody else and then we added an additional product that nobody else had added yet. That combination will keep us going for another two years. That's what makes us different. It is about finding leaders, not insurance people, being aggressive and then we added a new product.
5. What is the main challenge you are facing right now?
The business was so young, only 5 years old and life insurance is one of the oldest industries in the world. We grew very fast and we grew very fast in an economic boom and it was the perfect time to grow. The problem was that economic boom certainly burst and the growth was not there anymore. We couldn't just grow, sales were not flooding in. But more important for us was not that the sales started to slow up, it was the fact that the previous sales started to leave. A life insurance company makes money over a long period of time unlike motor insurance which is one year. We sell policies for twenty years or for thirty years even. If a person whobought a policy two years ago decides to stop paying that is as painful as not getting the sales. Our biggest problem was a combination of the fact that the sales slowed and the existing sales also started to leave us. We call them lapses. That has a double impact on your income stream. And that impact touches upon the sales people. They become very demotivated when sales are not there anymore. And the sales they sold last year are all leaving this is their income! They make income from the old sales and the new sales. We had to very quickly change our reward system so that we got people to refocus on what was important. We haven't finished this exercise yet. We had to almost reeducate people. We have a product that they can sell which is a pension which requires really no money from most people. We had to refocus people and say: "This is tough, just keep to focus on what you've got and here is the new product that you can sell that most people can afford because it is for free. It's just about transferring the signature". That took time. People who had been working for four or five years saw that everything had changed. They had to stop doing what they had done for 4 or 5 years. The best way to cope with it in our industry is to change the motivation and the reward system.
