Mike McGavick’s turnaround experiences have led him to think carefully about changes that are needed for the insurance industry.
“First, cost has got to come down. It’s absurd that approximately 60 cents on every dollar is what the customer gets back. It needs to be much higher,” said McGavick, the former chief executive officer of XL Group. He is currently special adviser to AXA Group CEO Thomas Buberl – a position he assumed after AXA’s purchase of XL Group in September 2018.
In an interview with Carrier Management, McGavick said technology will enable the industry to move in that direction. (See related story: Thinking Past the Obvious: Former CEO of XL Group McGavick Looks Back).
His second recommendation for the industry is that it needs to be more insightful about risk “because the more certain we are of what it is we’re trying to insure, the more trustworthy we can make the product, the more trusting customers will be that they’re actually getting value for what they’ve bought.”
And finally, he said, insurance has not always been viewed as being trustworthy. “It’s the reason the industry has the recruiting problem it has; it’s the reason it has the lawsuits it has. The industry doesn’t always create products that work in a way that people fully trust them.”
The industry will enhance trust by being focused on customers’ needs and by using technology that will develop new solutions to old problems, such as microinsurance for low income people and parametric triggers that pay when winds or earthquakes hit a certain intensity or rain reaches a certain volume, he said, explaining that parametric triggers can help increase trust that the insurance product will perform as advertised.
These are big ideas that will help the industry do more of what it’s supposed to do—to bridge the insurance protection gap, he said, noting that such underinsurance affects both developing and developed nations.
Some of the regions with the biggest protection gap are in places you would least expect, McGavick explained. “Although it’s an old story, my favorite example is Superstorm Sandy. I’m pretty sure that storm hit the most insured square mile on the planet, and yet only 50 percent of the economic loss was insured. Underinsurance is rampant, and it’s all around you hiding in plain sight.”
McGavick admitted he feels passionate about these topics and thinks the opportunity to reinvent the business in some really profound ways is at hand.He quoted AXA Group CEO Thomas Burberl, who has said: “We’re coming to the golden age of insurance.”
“I think he’s right,” said McGavick. “This is the time when the world is going to realize it can’t afford to just use government solutions to protect people against the kinds of risks that are coming at them. We have to have a robust system of private insurance that is able to really understand customer needs and change their loss experience and their trust in insurance.”
The biggest challenge for the property/casualty executive in the years ahead is the rate of change, which continues to accelerate, he warned. “You have to have people and systems that can keep up with that mutating risk. It’s going to change the ways in which you organize people, so you have to be highly creative in how to apply talent in a changing environment to changing risks. That multiplies the complexity.”
But it’s not all negative, McGavick emphasized, because these mutating, complex risks are creating the opportunity to reinvent the insurance business in some profound ways. “You are going to have to be deeply thoughtful about how you create a highly adaptive organizational model and empower people to come up with creative solutions, when we humans don’t normally like change very much.”
The human tendency is to resist change in a world that is changing rapidly, which creates a real challenge for insurance company leaders who need to promote innovation and have the corporate structure that promotes it. “That’s the challenge that anybody who leads a high-performing company has to deal with all the time.”
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