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Categorized | Insurance

Axa chief excited by technological change

Posted on January 31, 2016

Paris, the 31th of July 2012. Mister Henri de Castries. AXA copyright : Magali Corouge/ Documentography©Magali Corouge

Henri de Castries

Old meets new at Axa’s Paris headquarters. The old is an ornate 18th century mansion. Bolted on to it is the new — a modern glass-fronted office block. Henri de Castries has his office firmly in the old part. But, like a growing number of insurance executives, his conversation focuses on the new.

The chief executive of Europe’s second-biggest insurer by market capitalisation says that the industry is dealing with technological change unevenly. “That is great news,” he adds, explaining that it allows more nimble operators to win business from those slower to embrace change. “Everyone is threatened . . . and it creates more fluidity in market shares.”

He wants to put Axa at the forefront of the change. A bewildering array of initiatives is already under way — research labs in Silicon Valley and Shanghai, a €200m venture capital fund to invest in external start-ups, a new internal incubator fund called Kamet with €100m to invest, partnerships with LinkedIn and internal data analysis competitions to name just a few.

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Henri de Castries, Chief Executive Officer at AXA photographed during the interveiw, for one use in the Financial Times, copyright Magali Delporte, 2012

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And the pace is about to pick up. This year Axa comes to the end of its latest five year plan, and a new one will be presented in June. “There are three areas for growth” he says. “The traditional ones are the least powerful going forward.”

The less powerful tools are, for example, the time-honoured strategy of being more selective in mature countries while pushing into growth markets. The excitement, says Mr de Castries, is in the digital transformation of the business.

He says the industry is moving to a world where, instead of having a few data points on which to price risk, there are now a near unlimited amount, which can me measured in real time, with black boxes fitted in cars to measure driving safety just one example.

His speech rich with metaphor, Mr de Castries says the industry is “moving from the representation of buffaloes in a grotto in Alaska by prehistorical painters to a 3D image. It’s much more accurate and dynamic, enabling you to have much more accurate and dynamic pricing.”

And it is not just about using data to underwrite more accurately, he says. “It enables you to significantly increase the chances of prevention. Customers coming to an insurer would rather avoid risk than be paid the claim. If you have a much more accurate view of the risk, you will be able to do more prevention.”

    This does not mean that traditional avenues of growth will be absent from the new strategy. Axa reported a solvency ratio of 212 per cent in December under the new Solvency II rules. Although many European rivals have not yet reported their ratios, Axa is expected to be among the stronger ones. That will put it in a good position to use its balance sheet to make further acquisitions — in the first half of 2015 the company completed deals in Africa, Poland, and Brazil.

    But bigger deals are not the priority. “We know how complex it is to integrate other companies. Do you really want to merge two 19th-century factories when the challenge is to build a 21st-century factory? One way of consolidating is to take others’ market share without buying their balance sheet.”

    He hopes that modernisation will also move into the European economy, helping to kick-start growth in the region. Unfortunately, he says, many countries have been proving reluctant to do the necessary “surgery” on their economies.

    He is particularly critical of France’s Socialist government, despite its policy reversal about two years ago when it began pledging to cut taxes instead of raising them, on top of reducing red tape and creating more flexibility in the labour market.

    “There is more talk than action,” he says. “When you look at what the state is spending today in euros compared with last year it is more. When compared with 2012 it is much more . . . the burden on companies is phenomenal and very little flexibility has been introduced in the system.”

    He praises Emmanuel Macron, France’s reformist economy minister, for sending the right message but says that, ultimately, not enough has been done. Picking up on a phrase that he says he heard at the World Economic Forum in Davos, he says: “Talking does not cook rice.”

    Closer to home though, Mr de Castries sees new risks threatening both his clients and his own company. Cyber attacks are a big concern. HSBC, where Mr de Castries is about to become a non-executive director, suffered an attack late last week.

    “Cyber is much higher on my list, both as a worry and as an opportunity . . . It is the biggest source of disruption potentially for any industry. It’s true for government, utilities and individuals,” he says,

    “Most at the moment do not understand it, and are not covered.”