Saudi Arabia’s insurance sector is set to become the largest in the region, according to Paul Adamson, Managing Director of AXA Cooperative Insurance, who explains how his company is tapping the emerging opportunities early, as some areas of the industry are yet to take off.
How do you see the future of insurance in Saudi Arabia, and as you have wide experience in the region, how competitive is the industry here compared to other countries?
Certainly as an international organization as AXA, if you want to be a strong player in the insurance industry in the Middle East you’ve got to be in Saudi Arabia. I think this is the first key factor. It will become the largest insurance market in the region. I think there’s no doubt of that, and that’s well reported. In terms of our own journey, at the end of 2011, we were around just over $100 million. At the end of 2014, we were close to $300 million, and AXA is around $1 billion in the region. Saudi Arabia is playing an increasing part of that premium volume in the region so this is again quite exciting. Growth of around 30% per annum for AXA is really a great achievement and for the reasons we’ll discuss, we remain very optimistic in terms of the future growth aspirations that we have.
I think there’s a number of key factors which will drive future growth, for sure demographics in Saudi Arabia is a key driver. You have a young population, an expanding population of local nationals and in particular you have them coming into the private sector as well, which is key. You have the overall economic development taking place now. Yes, there can be some hiccups, but the overall momentum is very positive for the medium to long term, and you see that in the growth of the insurance sector over the last two to three years. The market has been dominated a lot by healthcare and motor insurance and I don’t see that changing. The healthcare market and motor make up around 75-80% of the market in Saudi Arabia.
The healthcare regulations have been well implemented and they are being expanded to include dependence of Saudi nationals and hopefully including domestic workers in due course. We have been very optimistic in terms of that and expect to see continued strong growth in healthcare. Motor is experiencing great growth as well. We can see an increasing volume of cars on the road and therefore the demand of third-party coverage is increasing. We see those two, let’s say, holistic sectors, but we see probably more exciting fields in the real estate development and in what we call the retail sector in Saudi Arabia, because traditionally insurance companies are very focused on the commercial and corporate environment. As AXA, we have and are investing a lot to reach out to the retail customer. Our many vehicles is to open AXA shops in malls, in locations which are accessible to tampering insurance and closer to the local consumer.
Such as the recently opened store at Alhambra Mall?
Exactly, so the client can buy his car insurance, travel insurance, home insurance and also health all in one spot. Let’s be clear logistically, if it’s about getting to that retail customer. If we look at all the GCC markets, they are very well developed in terms of retail space. Whereas, and I’m sure you see it with the time that you have been here, that retail space is not so well developed by insurance companies here. For us this is quite an exciting area. Why is it exciting? Because we really think we can make a difference. Therefore, we have the retail shops and we’re developing our online activity. This is quite innovative; we need to move into the digital space. We see the penetration in Saudi Arabia in terms of smartphone usage and terms of YouTube usage.
The highest penetration in the world…
Highest penetration, so really we want to occupy the space and talk about multi-distribution. We also have implemented a call center, which is all run by females. Because for us, in the retail customer is where the huge potential will exist in the future, therefore we need product innovation and quality service, which will be key in order to manage such opportunities. There’s the traditional space, and we’ll also compete there, but for us developing a really exciting new space is what we really believe in; there AXA can make a difference. If you go and you visit one of our shops, you will see and feel that difference.
The insurance penetration is relatively low and a lot of it is because of the retail market is still to take off. The demographics are positive, the overall economy is positive and the regulator is making very positive moves towards the implementation of good insurance practices. We have seen healthcare, we’re seeing motor, and recently we’ve seen new regulations for property insurance as well.
What type of additional restructuring and regulatory developments are needed to ensure the sustainability of this growth?
I think the regulator is very engaged with the industry; there are a number of subcommittees to which the industry companies attend and participate. We have representatives that take part in the subcommittees whether it is the motor subcommittee, healthcare subcommittee or the property subcommittee. Really, there is a high level of engagement in order to build a future and this is key.
We’ve seen a huge success of the healthcare regulations and if you compare them to the rest of the GCC, Saudi has really taken the lead in terms of implementation. We’re seeing great innovations on the motor side, the implementation of compulsory motor, and this is still work in progress. The most recent is property and I’m sure, like we see in other developed markets, there will be property and liability insurance which will become compulsory. This will evolve through time, it will come naturally, but the property regulation has just come out in recent weeks. Again of course we see this as very positive news. I know it’s good news for the insurance industry but it’s also good news for the consumer as well.
You mentioned something very interesting which is innovation. There are many competitors in KSA. Do you see innovation as key to really compete and differentiate yourself from the rest?
Differentiation will be key in this market. Just a couple of key factors: the first one I think is AXA having a strong regional presence. Our customers in Saudi Arabia have business activities elsewhere in the GCC. Here we have quite a unique lever which is important since many companies here will have operations elsewhere. It is very easy to say, but the fact is that we can manage from a customer-centric approach for them, and that is a key element.
I think the second key element in terms of differentiation is that AXA is a multi-specialist. We are not just a healthcare provider, we’re not just a life insurance provider. We’re able to offer each of those different solutions to whichever customer segment, the retail customer, the corporate customer, the SME or even marine insurance. This is an important advantage because at the end of the day we’re trying to meet all of the needs of the customers.
We take a much more customer-centric view of the customer. These might be simple things but when you compare us to other local companies, these are key differentiators for us.
Another of our competitive advantages is our quality service and how we manage the moment of truth. We’re investing a lot in order to improve the quality of service and to differentiate from how this traditionally has been done. If I can give you one example, in terms of motor insurance, we have grown significantly in recent years. Our quality of service has been one of the key differentiators. The market here was quite traditional where, in case of an accident, you would have brought your car to the local AXA office for it to be inspected and so on. This is how business is done as usual here. Today our customer is able to report his accident on the telephone, receive his claim reference by SMS and he will be guided by one of our team members to take his car to one of our approved workshops, to which our surveyor will then go and inspect and approve the repair.
It’s a small element but key in terms of quality of service. Again being part of a global organization allows us to leverage off that knowledge and expertise and accelerate the transformation that we need to make in Saudi Arabia. We are one of the few companies to have the approval to transact insurance online and this is an area in which we will continue to invest for the reasons that you’ve mentioned in terms of the penetration. In the future not just selling online but also tracking a claim online and all of these different services will be possible.
We’re working at the moment on visitor insurance, where anyone coming to Saudi Arabia on a visit visa or business visa will have to have travel insurance. The vision is to be able to acquire and pay it electronically. There will be a number of preferred carriers recommended by the kingdom, and AXA obviously will want to be one of those. This is a real example of innovation, which is being set by the government but also with the support of the industry. When you apply for your visa if you’re coming from the UK or from Spain, you will have to have your travel insurance from a licensed company in Saudi, being able to provide that digitally or online will be key.
There are many, many areas where we are innovating in Saudi in order to make the difference from a customer perspective. In terms of pricing, which is an important part to the customer, we really believe in segmenting our price offering by rewarding good drivers. Looking at many other factors other than just look at the driver’s age, the vehicle value, the number of years without a claim, we will try to bring a more sophisticated pricing methodology in, to award the good drivers. The price and the proposition that we offer our customers are competitive. This is another key area of differentiation.
In order to provide that quality service you need a skilled workforce. Is that something that the company is focusing in? How is Saudization coming for AXA and how would you evaluate Saudis at the workplace?
For me, our people are the key component to the future success of AXA in Saudi Arabia. Ultimately our people are facing the customer. They are facing our intermediaries and other partners that we have. For us they are our key priority. If we look at the evolution of AXA, a few years ago, we were at around 40% in terms of Saudization. Today we’re at 60% and we’re very proud of having achieved that. We’ve achieved that in many different ways. One is through recruitment of young talent but also through the development of our own talent internally and the promotion of Saudi nationals into management positions.
We have developed diversity in the company. We have recruited Saudi ladies and recruited Saudi managers, females, key talents. Some of them you will meet today in our ladies section; they are leading teams, innovating and driving transformation in the business. They really are serving our customers. If you visit any of our retail outlets, you will see they are all staffed by Saudi employees. We are courageous enough to do that. We have a rigorous training and development program, an on-going training for our talent to grow.
Likewise in our call center, we continuously provide training to the staff, high quality management and technical programs for them. Our business activity has grown from $100 million to $300 million, and that would not have been possible without transforming the people inside of the organization. You cannot separate these components so it’s absolutely key to have a clear strategy in place on each of the different components in terms of training and development, in terms of recruitment, in terms of compensation and reward, in terms of personal development, in terms of appraisals. All of these aspects are key to also making a difference. With each of these components and developing the culture of AXA, we will retain our employees, which is also very important.
All of these factors are key to their retention. For sure traditional ways will not work, we need to have a more holistic approach to development and retention of local talent and I believe we’ve been very successful at doing that.
Last February AXA approved a 125% capital raise (to SAR 450 million) through a rights issue. What are the main reasons behind this capital raise and what impact will it have on the company’s performance and growth?
I think if we go back five years ago when the company was setup, we did it with the minimum capital, which was SAR 200 million, very similar to the rest of the players back then. After three years period capital requirements increase so let’s say it was no surprise to increase the capital of the company at the end of the three years. We increased the capital of the company from SAR 200 million to SAR 450 million so it was a very significant increase. What was very encouraging through that process was that 95% of shareholders subscribed to the raise. I think that in itself shows the appetite and the confidence that those shareholders have in the company, which for us was really, very reassuring.
We have a good foundation now, we have a strong team, we have a strong customer base and we have a strong support from intermediaries in the market. Really it’s about the next stage of the journey for the company and it will be named “expansion”.
We will need to change the scale of our call center and this is happening quite progressively. We will need to invest much more in the digital space in order to prepare the future opportunities. We will establish AXA’s head office here in Riyadh, we are in the process of identifying a suitable location in Riyadh and we will bring all of our teams in together under one roof in this new location.
It will be quite exciting to create the right environment for our teams; it will mean a significant investment here in Riyadh but we really have all the confidence that is the right thing to do and needed for the long term. We need to put AXA in the spotlight in Riyadh and we’d be very proud of that. We have many projects, many initiatives, which are ongoing in order to prepare the long-term future. At the end of 2014, AXA was number five in the market, so not a bad position at all. We are satisfied but of course we have aspirations to grow further and we have a clear strategy to get there.
In this process, in this journey of growth, how important is it for AXA Cooperative to build relationships with well-known international companies to carry out insurance operations on a large scale and how can UK companies be part of this journey?
Of course as an international company we want to reach out and appeal to international companies coming to Saudi Arabia. This is a natural market for us and a market in which we are well able to compete and to meet sophisticated and demanding insurance programs. This is a market in which we are very successful today. We have many international clients in our insurance portfolio here in Saudi Arabia and we are very proud of that. Many of them have been clients with us for a considerable period of time and we value the trust placed in us.
I think what is important when someone is setting a business up here is not just providing an insurance but also advice and risk management. Where should they locate? What type of property should they acquire? How should their premises be managed from a risk management perspective? What are the employee benefits they need to provide? We have risk surveyors we are able to counsel and provide added value through our services. For us it’s a natural market and we do work closely with other stakeholders. We have both the local and international clients, and again, I think it shows the confidence in our company.
You’ve been in the region and in Saudi for a long time. What brought you into this market and what is your vision for the company in the years to come? What do you plan to achieve while being AXA’s MD?
What’s important for me certainly in life is the job satisfaction; it is the ability to be creative, be innovative and see the results of that innovation. I think one of the things that I have been fortunate enough to experience in the Saudi market is to see the development of the insurance sector and the success achieved over recent years. The greatest achievement for me has probably been seeing the development of teams.
Everyone gets driven differently and I am driven by the challenge. It is a complex market, but full of opportunities; it’s a great opportunity for individuals but it’s also a great opportunity for international companies to make a difference. I think if those are the things that drive you, Saudi is really a land of opportunities. You will meet some of the team members and you will see their high level of engagement, the high level of motivation. Really to see the results is very, very satisfying. If you’re working in a developed market such as Europe, you have 2-3% growth per year. To be working in a market where it’s 20-30% growth and you can really innovate and make a difference is definitely exciting. I am looking forward to the years to come and to be part of this incredible journey.