Suncorp Plans New Simplification Initiative
At its May 29 Investor Day presentation, Suncorp Group assured investors that the company is well positioned to prosper in the medium term, aided by a new program designed to make operations simpler and more efficient.
Patrick Snowball, Suncorp Group CEO, acknowledged that the company had grown overly complex and insufficiently integrated as the result of the host of mergers and acquisitions that have happened over the past 15 years. He said he expects the simplification initiative to drive increased productivity and lower costs, resulting in benefits that “extend far beyond efficiency gains.”
Simplifying Suncorp will come at a cost of some $275 million, all drawn from operating budgets. The program touches on Suncorp’s banking and investment operations as well as insurance, and Snowball expects it to deliver approximately $200 million in annual benefits beginning with the 2016 fiscal year.
Snowball pointed to the company’s “Building Blocks” program as the foundation for the new initiative. Suncorp claims that, beginning in June 2013, Building Blocks will save the company $235 million each year. Several components of that initiative focused on insurance, including the introduction of a common pricing system and improvements in managing motor vehicle claims.
According to the company, 14 legacy insurance policy systems will be decommissioned and insurance licenses will be consolidated under the new initiative. Not only will these changes improve Suncorp’s customer service, the company said, but they are expected to strengthen the company’s position when new capital requirements for Australian insurance companies come into effect.
In evaluating the results of Suncorp’s insurance operations, Snowball said that performance had exceeded expectations, with underlying margins of 12% expected for the current year, an increase over the previous year’s margins of 10.8%. He also confirmed that the company was expected to meet the goals it set in 2010, albeit at a later date than expected. Snowball attributed any delay in meeting growth targets to the volatility of conditions in the market, not to any shortcomings specific to Suncorp.
Despite the company's wish to simplify, structural changes are not on the agenda, and Snowball sees good reason to leave Suncorp’s five existing lines of business in place. In fact, according to the company's summary of its Investor Day presentation, diversity is a blessing. “By leveraging the diversity and capital return of each of our businesses we can effectively direct capital through the Group to where it can achieve the greatest return, while aggregating for scale achieves the cost benefits of an ASX 25 organisation without diminishing brand differentiation,” Snowball said.