Seeing the Customer Needs

Otto Thoresen

Director General

Association of British Insurers

The newly-appointed chief executive of Aegon UK believes in listening to customers. Otto Thoresen explains to Anthony Thomson how this has shaped his strategic approach.
How would you describe your vision for Aegon UK?
We think in terms of three very different businesses in the UK – a life and pensions business; an asset management business; and the distribution companies that are the newest part of the group. At the highest level, the vision is to build the best long-term savings and protection business in the UK market – and that’s something that everybody in the organization has now heard from me personally over the last six months. When I started, I didn’t talk about it as simply as that. I tended to build up a big story about all the issues and concerns that had to be addressed and all the subtleties of what we’re trying to create, but then I realized that that’s not actually what people want. They want clarity about direction, and our simple and straightforward vision does neatly sum up all the elements of what we’re trying to do.
And how does Aegon UK fit within the broader group strategy?
At the moment, Aegon is substantially an American group, in the sense that, after the TransAmerica acquisition, it accounts for about 70% of earnings. Aegon has a large share in the Netherlands, but it is quite a mature market, so the growth potential there is rather less – which is why the group would like to see the UK delivering a greater proportion of the total in terms of earnings and new business, because they see that we have a good, strong position here. Compared with many other markets, the leaders here still have quite small shares, so there is potential for market share growth. There are only two problems. One is the ability to achieve acceptable returns on the capital invested, and that has been significantly impacted by the advent of stakeholder pricing. That is a challenge for a pensions business like ours, but it is manageable – partly because stakeholder charges are now 11/2% instead of 1%, which gives an opportunity to make a positive return; and partly because there are growth opportunities for us outside the pensions sector. The other issue is the risk attached to the return of capital, because stakeholder pricing only allows companies to take significant charges through the annual management charge, which means long payback periods in which they are exposed to the persistency risk – and that is as big an issue for the group as are investment returns. We have addressed the returns issue with some fairly significant financial management initiatives over the last two or three years, but there is still a question mark over how the UK market will move to a position where the interests of customers, distributors and providers are aligned, and also whether the persistency exposure that the providers currently carry is manageable.
Markets like Brazil, Russia, India and China, with GDP growth of 8%+ must be much more attractive in investment terms. Doesn’t that make it difficult for you to access capital from the group?
Not at all. Aegon has ambitions in those growth markets – there have been some significant developments in Taiwan and China, and in Central Europe – but it is looking there for earnings growth in ten or twenty years time. But it also wants to see earnings growth and development in its mature markets on a five-to-fifteen year horizon. What we have to demonstrate is our ability to achieve the right kind of risk balance and the right kind of growth in returns. Over the past five years, our focus in Britain has been on “managing the stock” – cost control, margin management, mix management, trying to stabilize the position so that the capital already invested in the business achieved the desired returns. That has naturally played to the financial disciplines in the leadership team, but now we are increasingly turning our attention to the marketing management disciplines, because that is where profitable future growth will come from – as long as those disciplines are applied well! So we will still keep the strong focus on financial discipline and shareholder value; but this will increasingly be blended with the identification and development of winning consumer propositions that differentiate us from the competition and give customers real value – and thus generate the shareholder value as well.

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